Nicole Reese Prog Final 1

8/14/2019 Nicole Reese Prog Final 1

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1. Research Harvard University's financial information (from a recent 990 or from one of

the popular charity evaluation sites), available easily on the Internet, and answer the

following questions:

a. How much does Harvard spend on program expenses, administrative expenses, and

fundraising expenses?

Based on information on the Charity Navigator website, Harvard University spends

$3,557,072,057 on programming expenses, which is 89.8% of their annual expenses.

$314,359,159 is spend on administrative expenses, or 7.9% of the annual expenses.

Fundraising expenses amount to only $87,999,660 per year, or 2.2% of annual expenses.

b. What is the salary of the current president of Harvard and what is his or her name?

Drew Gilpin Faust is the current president of Harvard and his salary is $714,197 per year.

This amount is only 0.01% of their annual expenses.

c. What is the value of Harvard's endowment?

According to the 2011 Harvard University Financial Statement, the value of the

endowment was $27,565,029 at the end of FY 2010.

d. What is the salary of Harvard's highest paid staff member?

According to page 10, of the IRS 990 form from 2007, the highest paid employee other

than officers, directors, and trustees, was Professor Joseph Bower, who received

$365,000 in compensation, $50,992 in contributions to employee benefit plan and

$630,000 in expenses accounts and other allowances.

e. In about 200 words, why do you think thousands of Harvard graduates contribute

millions of dollars to Harvard every year even though Harvard is perhaps the most


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wealthy charity in America?

Even though Harvard is one of the wealthiest charities in the United States, every year

they see millions of dollars pour in from alumni because they understand the value of that

institution within their local and global community. In his 2009 bookMission Based

Management, Brinckerhoff states quite aptly that nonprofit does not mean no profit. It is

only through continued investment into Harvard that the school is able to grow and

continue to educate as well as conduct scientific and medical research. Furthermore,

donations from the alumni help to provide scholarships for students that might not

otherwise have the financial means to attend the school. A person's ability to educate

oneself should not be contingent on the contents of his or her bank account. In this case it

is the positive externalities of having an educated population that are motivating the

former students to donate.

f. In about 200 words, why (or why not) does Harvard deserve to be tax-exempt from

federal income taxes and local property taxes?

Operating under Grobman's Externality Theory (2011), Harvard has the

legitimacy to classified as a 501(c)3 due to all the positive benefits that occur do to the

institution's existence. In addition to educating undergraduates, and graduate students,

Harvard also serves as a place of medical and scientific research. When discoveries like

vaccines, or cures for diseases are discovered, the larger community will benefit from this

research. This point also ventures into Grobman's Market Failure Theory (2011). Marcia

Angell discusses in her 2004 book The Truth About the Drug Companies, that for-profit

drug companies see little financial incentive in putting large amounts of research and


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development (R&D) money into searching for new cures for smaller diseases or

conditions when such endeavors could end up being unsuccessful, especially when there

is a much higher return on investment for "inventing" another erectile dysfunction drug

or SSRI medication (Angell, 2004). It is because of this lack on financial incentive that

we rarely see any new drugs come to market that the FDA labels for priority review,

meaning that the drug offers a major advancement in treatment (US Food and Drug

Administration, 2011). According to the FDA'sFY 2011 Innovative Drug Approvalsof

the 35 new drugs approved only 16 were labeled as "priority," the most in almost a

decade. Of the 16 priority drugs, 8 were considered Orphan Drugs, and 75% of all

priority drugs saw the beginning of their research take place at a university medical

center.

By allowing Harvard to have a 501(c)3 status, the government is creating a

financial incentive for alumni and foundations to make contributions to Harvard. It is

these donations that have created the large operating budget that allow the medical school

to conduct ground breaking and innovative research to the benefit of the general

population.

2. Provide a list of four nonprofit organizations in your community. For each, choose atheory from Chapter 3 of the Grobman book (select four different theories for four

different organizations) and, in about a total of 300 words, provide the best theoretical

explanation for why these organizations were established.

The four organizations I have selected from my region are The Community Abortion

Information and Resources (CAIR) Project, The Phinney Neighborhood Association, The

Duwamish River Cleanup Coalition, and One By One.

The CAIR Project was founded in August of 1998, and has a mission of providing grants


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to underprivileged women, to help cover all or part of the cost of an abortion. This most

closely emulates the Public Goods Theory, in that it was the creation of a voluntary

organization to provide collective goods. What The CAIR Project is doing is collecting goods

(financial contributions) to help provide a public good (reproductive healthcare procedures)

to women who are uninsured or underinsured (government failure).

The Phinney Neighborhood Association (PNA) was founded from the non-economic

Mediating Structures Theory. The PNA was founded in 1980, and in 1981, purchased the old

Phinney School House to turn into a community center. Now, the Phinney Center is used to

teach classes, hold public gatherings, and it hosts a local farmers market ever Friday in the

summertime. The Mediating Structures Theory states that an organization is working to

shape cultural values in a positive way (Grobman, 2011), and that is exactly what the PNA

has done with their community center. The Phinney neighborhood, while as diverse as any

neighborhood in Seattle in both ethnicity and the socioeconomic status of households, has

had one of the lowest crime rates in the city for the past 15 years.

The Externality Theory states that nonprofits are formed in purpose to address externality

issues (Grobman, 2011). This is the case with the Duwamish River Cleanup Coalition

(DRCC). The DRCC was founded to address the issues of modern pollution and the

superfund sites on the lower Duwamish River in downtown Seattle. After 150 years of

industrial development, the Duwamish has lost 80% of its natural shoreline. Because of this

the river also lost its natural filtration system. The lower Duwamish is the second largest

superfund site in the United Stated. The DRCC works with the businesses along the

Duwamish, Boeing being the most notable, to minimize their stormwater runoff going into

the river. They also partner with other local organizations to restore natural shorelines.


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One By One is a locally-based organization that does most of its work in developing

countries, working to treat women with obstetric fistulas. The Market Failure Theory applies

to organizations that are founded when the private-market demand for a good or services is

too low to encourage private firms to provide it (Grobman, 2011). In the case of One By One,

it is not that the demand is too low, thousands of woman all over the world suffer from

obstetric fistulas, the issues is there is not enough financial gain to encourage private firms to

enter the market. The surgery to fix a fistula is roughly $450 USD, putting it out of reach for

most women in developing countries. Because there is still a need, One By One was

developed to raised funds to bring doctors to the women and perform the surgery, thus filling

in where the market has failed.

3. Make a list of ten collective goods. Choose five of these and describe (in a total of about

300 words)why each of these is more appropriately delivered by the public sector, the

nonprofit sector, or should be appropriately delivered by both.

Collective goods, also known as public goods, are goods that are non-excludable and where

there is no economic rivalry. Ten examples of collective goods are:

1. lighthouses2. national defense3. fire departments4. police5. street lights6. libraries7. open-source software8. public media (PBS/NPR)


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9. green transport infrastructure10.public parks

Given the nature of the nonprofit sector, it is more appropriate for collective goods 1-5 to be

delivered from the private sector. Nonprofit organizations are mission-driven, and are only able

to operate through donations, grants and contracts (Brinckerhoff, 2009). Hypothetically, if a

nonprofit were to operate a lighthouse, or street lights, and they were unable to collect enough

contributions to keep those piece of infrastructure operational, there could be serious danger to

public safety. Police departments and fire departments are best kept in the public sector for the

same reason.

Two reasons why it is best to keep national defense in the public sector both connect with

money. First, as previously stated, nonprofits operate on donations, grants and contracts

(Brinkerhoff, 2009). Fundraisers are able to collect individual contributions from people because

they believe in the mission of the organization. Whereas an individual might agree with a

specific action taken by the military, it would be difficult to get a person to make contributions to

purchase a missile or a bomb. Second, even when a donor base is identified, it would be

impossible to raise the amount of money required to operate the United States Military through

individual contributions.

Alternatively, it is preferable for a collective good such as public media to continue to be run in

the nonprofit sector instead of in the public sector. Currently, PBS is able to run children's

programming that has next to no return on investment, but is of enormous educational value to

the community it serves. Because the station does not have to worry about attracting advertisers

to purchase spots, and is instead supported through individual contributions, it is able to continue

to run unprofitable shows on the merit of their educational value. Further more public media


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outlets are a very reliable source for unbiased media. IfThe PBS Newshourwas produced by a

government agency instead of the PBS station out of Washington, DC, there would always be a

question about the journalistic integrity of the show.

4. In the Jane's Dilemma case, in about 300 words, what are the pros and cons of Jane

reporting her unethical offer for accepting employment? Who, if anyone, do you think

she should report this to?

In the case of Jane's Dilemma, there are only a few drawbacks I was able to identify in

reporting Plotkoff's highly unethical offer. The first issue would only arise if Jane was

actually considering hiring Plotkoff, in which case she would clearly be burning that bridge.

The other drawback that I was able to suppose concerned Jane's reputation amongst her

peers. By reporting Plotkoff, Jane could be viewed as an individual that is not to be trusted

with sensitive information or a closely kept secret, seeing as Plotkoff did make her this offer

under the strictest of confidence. Additionally, there are some people that will always assume

that Jane exaggerated facts in order to harm Plotkoff's career and somehow better her own

organization.

The pros in this case clearly outway the cons. By reporting Plotkoff's offer, Jane is able

to keep her integrity intact. Furthermore, she might regain some of the board's trust by

displaying such veracity at a very difficult time in her career. Additionally, Plotkoff's offer

could effectively cripple the foundation's main rival for donations; yet when the opposing

organization's mission mimics your own, you are clearly placing self-interest above your

mission statement. By reporting Plotkoff's offer, and preventing him from making it to

another group, Jane would not only be looking out for her organization, but she would be

defending the primary objective: serving Jewish adolescent runaways and missing children.

Given Jane's tumultuous position with the board of trustees, I would say her best option


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would be to call a meeting with Goldie and the foundation's top legal advisor and disclose the

offer. Any other course of action might further damage Jane's position at the organization, as

it could raise questions about her trustworthiness and whether or not she has the

organization's best interests at heart.

7. Research the issue of whether it is ethical or unethical for nonprofits to pay their

development people (either in-house or contract fundraisers) based on a percentage of

funds they raise. In about 300 words, write about the pros and cons of paying

fundraisers based on the amount they raise, and why doing so would be ethical or not.

Upon joining the Association of Fundraising Professionals, I was asked to adhere to a

code of ethics. In the section dedicated to Compensation and Contracts, the first guideline

states, "Members shall not accept compensation or enter into a contract that is based on a

percentage of contribution; nor shall members accept finder's fees or contingent fees..." The

purpose of this guideline is to ensure that fundraisers remain above reproach in the manner in

which they solicit contributions from donors.

By allowing a fundraiser to keep a percentage of every contribution raised, there is an

increased likelihood of the fundraiser embellishing facts in order to secure a contribution

(Grobman, 2011). Furthermore, as the size of the contribution increases, so does the payoff

for the fundraiser, there is always a risk that the fundraiser will use high pressure tactics to

get a donor to increase the size of their gift instead of stewarding the relationship between the

donor and the organization. If the latter scenario does indeed occurs, instead of forwarding

this mission of the organization, the fundraiser would be harming the sustainability of the

organizing by burning bridges with contributors (Maple, 2012).

Alternatively, it can be said that by allowing a fundraiser to keep a percentage of gift

they bring into the organization, you are encouraging the individual to work more diligently

and efficiently, since the more the organization receives, the more they receive in


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compensation. Also, it could encourage a fundraiser to become more invested in the

organization, encouraging them to learn every aspect of the group, so that they might be

ready to make an appeal at a moment's notice. Having a highly-dedicated and well-informed

staff member is a wonderful resource to any organization.

Despite the possibilities of marginal benefits from offering commission-based pay for

professional fundraisers, the possibility for an individual's greed and deceit clouding his or

her ethical judgment is far too great. If a fundraiser is able to prove that they are going above

and beyond their budgeted expectations, then the proper course of action is to appeal to the

board of directors for an increase in one's hourly wages or salary.

References

Angell, M. (2004). The Truth About the Drug Companies.New York: Random House.

Brinckerhoff, P. (2009).Mission Based Management.Hoboken: John Wiley & Sons, Inc.

Grobmen, G. (2011).An Introduction to the Nonprofit Sector.Harrisburg: White HatCommunications.

Heilbroner, R., & Thurow, L. (1998).Economics Explained.New York: Simon & Schuster.

Maple, P. (2012, January 10). Ethics of Pay by Commission. Third Sector, p. 31.

Martinez-Carbonell, K., & Meyers, R. (2004, May). Non-profits Need to Increase Advocacy of

Ethical Standards.PA Times, p. 4.

President and Fellows of Harvard College. (Fiscal Year 2011).Harvard University Financial

Report.Cambridge: Harvard University.

US Food and Drug Administration. (2011).FY 2011 Innovative Drug Approvals.Washington,

DC.

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Nicole Reese Prog Final 1