case study soultion

In this case, you put yourself in the position of Kenneth Dam, the interim president. He is about to inherit a troubled organization and he has to lead it through a crisis situation. First he needs to identify the major issues/problems facing the organization; what problems did the scandal bring to a fore? Then he needs to prioritize the issues/problems and decide what the most 10 | P a g e pressing issues are. Next, he needs to decide what to do–how will he address these issues? What actions will he take?Lorsch, J.W. & Watson, A.H. (1993) United Way of America: Governance in the Nonprofit Sector (A)
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Harvard Business School
9-494-032
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October 12, 1993
The United Way of America:
Governance in the Nonprofit Sector (A)
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I reject categorically, any suggestion of misappropriation or breach of trust during my
tenure at the United Way of America. The board of governors, at all times, was fully
informed about the management of the United Way of America.1
—A response by William Aramony when confronted with
allegations of wrong doing at the United Way of America.
On March 4, 1992, Kenneth W. Dam, IBM vice president, was jolted awake by a telephone
call in his Melbourne hotel room, from John F. Akers, IBM chairman and chairman of the United
Way of America (UWA) board of governors.2 Akers asked Dam to serve as UWA interim president
until a successor to William Aramony, the former president, could be found.3 Just a few weeks
earlier, Aramony had been publicly accused of abusing UWA funds and was forced to resign
abruptly.4 Dam accepted the position, arriving at UWA headquarters in Alexandria, Virginia, two
days later.5
tC
The United Way
The Local Chapters
No
When the allegations against Aramony were made, the United Way organization was one of
America’s most successful and respected charitable institutions. Its name and logo of an outstretched
1Charles
McCarthy, Jr., “United Way’s Way of Management,” The Washington Times, 26 April 1992, p. B3.
Grant, “Acts of Charity: Furious Donors Blamed a Lax Board After a Funds Scandal Toppled the LavishLiving Head of the United Way; Now Can the Blue-Chip Agency Regain the Public’s Trust?” The Los Angeles
Times Magazine, 13 September 1992, p. 60.
3Ibid.
4Ibid., p. 40; Deborah Sontag, “Affiliates Feeling Pinch of United Way Scandal,” The New York Times, 22 April
1992, p. B6.
5Grant, “Acts of Charity,” p. 60.
2Linda
Do
Research Associate Alison H. Watson prepared this case under the supervision of Professor Jay W. Lorsch as the basis for
class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. This case was
written entirely from public sources, as noted.
Copyright © 1993 by the President and Fellows of Harvard College. To order copies or request permission to
reproduce materials, call 1-800-545-7685 or write Harvard Business School Publishing, Boston, MA 02163. No
part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in
any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the
permission of Harvard Business School.
1
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infringement of copyright. Permissions@hbsp.harvard.edu or 617.783.7860.
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The United Way of America: Governance in the Nonprofit Sector (A)
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hand holding a rainbow were nationally recognized by people from all walks of life as a symbol of
America’s voluntarism.6 Only the federal government supported a greater variety of health and
human services.7 The United Way organization owed its success to a cadre of determined volunteers
and professionals who had performed admirably for more than a century, as well as to numerous
United States presidents and powerful business leaders who had donated their time and resources to
the cause.
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In 1992, the United Way network included more than 2,100 community-based organizations
dedicated to the financing of local community charities through a single community-wide fundraising campaign.8 The local chapters operated under the same name and logo, but each was an
autonomous, separately incorporated community organization governed by a board of community
volunteers.9 Hallmarks of local United Way chapters included professional staffing, once-a-year
intense fund-raising drives, strong support from business, payroll deductions, and corporate policies
limiting charitable fund-raising on the work place premises to the once-a-year United Way
campaign. As an organization, the local chapters annually raised billions of dollars for charities
through voluntary contributions from individuals, corporations, small businesses and foundations.
In 1991 alone, the local chapters raised more than $3 billion.10 This money was then distributed by
the local chapters to approximately 44,000 local and national health and human services agencies in
their communities.11
William Aramony and the United Way of America
tC
In the late 1960s, the local organizations were loosely united under a national organization
and operating under different names.12 At that time, a study commissioned by the national
organization to evaluate the entire system found that the fund-raising body lacked the unity and
sense of purpose required to adapt to the rapidly shifting American society.13 The report also found
that the more forward-thinking national organization had a limited ability to influence the local
organizations.14 In response, the national organization reorganized into the United Way of
America.15 William Aramony, who had run United Way chapters in South Carolina, Indiana, and
Miami, was chosen to lead the new national organization, arriving in 1970. He came to the position
of president with a mandate to develop a strong central organization and to ensure a voice for the
United Way system in both the public policy arena and the business world.16
No
Aramony set a new course for the United Way organization. Commentators have noted that
many credit his leadership with changing the loose-knit coalition of local fund-raising groups into a
Do
6Eleanor L. Brilliant, The United Way: Dilemmas of Organized Charity (New York: Columbia University Press,
1990), pp. 3-4, 10.
7United Way of America Fact Sheet, August 1992, United Way of America, Alexandria, Virginia. (Hereinafter, UWA
Fact Sheet).
8Ibid.
9Ibid.
10Ibid.
11Ibid.
12Charles E. Shepard, “Perks, Privileges and Power in a Nonprofit World: Head of the United Way of America
Praised, Criticized for Running It like a Fortune 500 Company,” The Washington Post, 16 February 1992, p. A38;
Wendy Melillo, “Community-Wide Giving Launched 105 Years Ago: With the Cooperation of Local Employers,
Concept Spread to Major Cities by 1920,” The Washington Post, 16 February 1992, p. A39.
13Brilliant, The United Way, p. 46.
14Ibid.
15Ibid., pp. 49-50.
16Ibid., pp. 159, 246.
2
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infringement of copyright. Permissions@hbsp.harvard.edu or 617.783.7860.
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powerhouse operating under one name, the United Way, and one logo.17 He also zealously
cultivated the UWA’s relationship with business leaders.18 In fact, Aramony was chosen for his
position partly because he valued and wanted to promote corporate involvement in every aspect of
the UWA system.19 Aramony knew that associating the United Way with corporations would not
only lead to higher donations, but would also give it authority, confidence, and a powerful national
voice.20
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Aramony’s considerable effort to nurture corporate relationships proved to be a good
business choice.21 Up to 90% of all United Way donations received in the early 1990s came from
company campaigns in which employees pledged payroll deductions and companies gave direct
donations.22 Business leaders sat on the local and national boards, made telephone calls, sent letters,
gave speeches, and attended meetings on behalf of United Way organizations.23 Corporations
frequently lent their executives and provided staff members to carry out company campaigns.24
Perhaps the most telling feature of Aramony’s success in cultivating corporate relationships was the
membership of the UWA board of governors, which was largely made up of the most respected
business and labor leaders in the country. (See Exhibit 1.)
Aramony would tell his staff that gaining the respect and support of corporate donors
required his functioning like the CEOs he courted.25 Thus, he rejected the image of poverty
associated with most charities and adopted corporate symbols of power and wealth: A six figure
salary, chauffeured cars, functions in expensive locations, and an office building on the Potomac
River which included a penthouse office for Aramony.26 These symbols had the effect not only of
gaining the respect of the corporate world, but also of giving the UWA employees a sense of equality
with their corporate donors.27 One UWA employee commented, “But in Aramony’s world, we were
just as valued and smart as the business people. My knees didn’t buckle when I went to corporations
to present briefings.”28
No
tC
During Aramony’s tenure, the local United Ways were also encouraged to manage
themselves more like businesses.29 They carefully evaluated potential recipients of funds, held
functions in posh locations, trained their professional managers, and paid salaries considered high
for the nonprofit sector.30 In addition, the local chapters were very efficient, using on average only
15% of their donations for administrative expenses, as against the Better Business Bureau guidelines,
which stated that administrative expenses totaling 50% of all funds raised was appropriate.31
17Wendy
Do
Melillo, Charles E. Shepard, “United Way Chief Exits Abruptly: Local Chapters Press Aramony to
Drop Plans to Await Successor,” The Washington Post, 29 February 1992, p. A6; Grant, “Acts of Charity,” p. 58;
Shepard, “Perks, Privileges and Power,” p. A38; Melillo, “Community-Wide Giving Launched 105 Years Ago,” p.
A39.
18Brilliant, The United Way, p. 252.
19Ibid., pp. 159-60.
20Ibid., p. 159.
21Ibid., 252.
22Grant, “Acts of Charity,” p. 40.
23Brilliant, The United Way, pp. 160, 162.
24Ibid., p. 163.
25Shepard, “Perks, Privileges and Power,” p. A38; Grant, “Acts of Charity,” p. 56.
26Shepard, “Perks, Privileges and Power,” p. A38; Grant, “Acts of Charity,” 40, 56, 58.
27Grant, “Acts of Charity,” pp. 56, 58.
28Ibid., p. 58.
29Brilliant, The United Way, pp. 255-56.
30Ibid., p. 250; Grant, “Acts of Charity,” p. 40.
31UWA Fact Sheet.
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Aramony encouraged the UWA board to use UWA’s funds to create several spin-offs, for
purposes such as achieving discounts for services, equipment, and travel through the combined
purchasing power of charitable organizations.32 Many local chapters valued these benefits.33
Although the UWA structured the spin-offs so that the UWA had little or no control over many of
them, Aramony, his son, and close associates continued to supervise the spin-offs through
“interlocking directorates.”34
Under Aramony’s leadership, the UWA became extremely influential within the United Way
movement through its resources, corporate contacts, national voice, and technical assistance.35 It
provided training, marketing, conferences, and fund-raising advice for the local chapters.36 It also
provided a significant amount of free advertising through a partnership with the National Football
League.37 In addition, the UWA provided a national network that enabled the local organizations to
share their best information and procedures.38
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In exchange for UWA’s services, local chapters paid voluntary dues to the UWA.39 In 1992,
about 1,400 of the 2,100 local chapters were dues paying members.40 Although the UWA
recommended that one cent of every donated dollar be paid as dues, contributions often fell below
this amount.41
As a nonprofit executive, Aramony functioned in a system with vague standards for
expenditures and operations. Some employees working in the charitable sector contended that those
collecting charitable donations must spend sparingly in administrating their charitable work to
ensure that the maximum amount reaches the needy.42 Others, however, disagreed, arguing that
such a standard promoted excessive frugality.43
tC
In addition, some in the nonprofit sector believed that charitable business was not business
as usual, reasoning that they must function according to standards different from those governing
business behavior.44 Supporting the philosophy that executives for charitable institutions should be
subject to strenuous ethical standards, Kenneth L. Albrecht of the National Charities Information
Bureau stated, “This sector has to stand for more than business. It must stand for values, ethical
behavior, truth, openness, willingness to discuss issues. It has a higher standard.”45
No
According to at least one philanthropy scholar, however, Aramony was judged according to
those standards that had been set by business practices: “Aramony was the board’s creation. A
board from the for-profit world transfers the same set of operational standards they go by in their
Do
32Charles E. Shepard, “United Way’s For Profit Offspring: Spin-Offs that Aim to Cut Charity Cost Collect
Criticism,” The Washington Post, 24 February 1992, pp. A1, A8; Shepard “Perks, Privilege and Power,” pp. A1,
A38.
33Sontag, “Affiliates Feeling Pinch,” p. B6.
34Grant, “Acts of Charity,” p. 40.
35Brilliant, The United Way, pp. 252-53.
36Ibid., p. 248.
37Shepard, “Perks, Privileges and Power,” p. A38.
38UWA Fact Sheet.
39Brilliant, The United Way, p. 251.
40The UWA Fact Sheet.
41Brilliant, The United Way, p. 251.
42Shepard, “Perks, Privileges and Power,” p. A38.
43Ibid.
44Grant, “Acts of Charity,” pp. 40, 62.
45Ibid., p. 62.
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infringement of copyright. Permissions@hbsp.harvard.edu or 617.783.7860.
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daily business. They didn’t see anything wrong with the salaries, perks, and spin-offs because those
are accepted practices in business.”46
During the 1980s, Aramony’s activities were causing some local chapters concern.47 By this
time, Aramony’s success at reshaping the United Way gave him great power and stature within the
movement.48 Some local chapters felt that the UWA had become too strong and was ignoring local
voices.49 Added to these concerns were worries that Aramony arbitrarily exercised his growing
power, such as hiring friends and family with questionable credentials for executive and consulting
positions.50 Finally, aspects of Aramony’s personal life caused concern within the United Way
system.51 He had a flamboyant personality and was known for his womanizing and wild trips to Las
Vegas.52 Insiders of the United Way movement worried for years that public knowledge of
Aramony’s activities would lead to plummeting donations.53
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Although Aramony had critics, he also had admirers, some of whom saw him as a brilliant
and creative man who transformed the United Way into the $3 billion enterprise that it was in 1992.54
Some even joked within the organization that “Aramony walks on water.”55 And whether critic or
admirer, many would agree that Aramony, who had spent nearly 40 years working in the United
Way organization, was sincerely committed to its goals.
The UWA’s Board of Governors
tC
The UWA was governed by a 37-member board of governors, dominated by the strongest
corporate and labor leaders in America. (See Exhibit 1). Surprisingly, membership included no
members from the local chapters.56 The board of governors met twice a year, but in between these
meetings a 14 member executive committee handled important issues.57 This governance structure
allowed UWA executives to bring important issues to the executive committee for resolution, instead
of relying on the two annual full board meetings.58 In addition to the board and the executive
committee, the UWA had one board oversight committee, which was responsible for the examination
of the audits.59
No
As directors of a charity, the board members had a fiduciary responsibility to oversee UWA’s
operations, and they chose to allow Aramony significant authority. One critic of the UWA remarked,
“Basically it was Aramony’s board. . . . He put it together for his buddies.”60 Some board members
commented that they trusted Aramony and therefore confidently delegated power to him.61 Others
46Ibid.,
p. 40.
p. 58; Shepard, “Perks, Privileges and Power,” p. A38.
48Shepard, “United Way of America President is Urged to Resign,” The Washington Post, 27 February 1992, p. A14.
49Brilliant, The United Way, p. 246; Grant, “Acts of Charity,” pp. 56, 58.
50Shepard, “Perks, Privileges and Power,” pp. A1, A38.
51Ibid., p. A38; Grant, “Acts of Charity,” pp. 56, 58.
52Grant, “Acts of Charity,” pp. 56, 58.
53Ibid., p. 58; Shepard, “Perks, Privileges and Power,” p. A38.
54Melillo, “Community-Wide Giving,” p.A39; Shepard, “Perks, Privileges and Power,” p. A1.
55Brilliant, The United Way, p. 254.
56Grant, “Acts of Charity,” p. 60.
57Ibid.
58Ibid.
59Ibid.
60David Shenk, “Board Stiffs: How William Gates and Paul Tagliabue Helped William Aramony Bilk America,”
Washington Monthly (May 1992): p. 10.
61Grant, “Acts of Charity,” p. 40.
Do
47Ibid.,
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explained that they gave little evaluation to the UWA management because it was difficult to
evaluate the success of a nonprofit organization.62
The Aramony Investigation
Period Before the Public Allegations Against Aramony
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In November 1991, Washington Post reporter Charles E. Shepard made his first inquiry
about Aramony’s activities to the UWA board of governors, prompting it to hire a private agency to
investigate Aramony’s management of the UWA.63 The initial findings, given to the board on
February 3, 1992, reported that the investigation thus far had found merely a failure to properly
document detail and to keep records.64 Relieved that the findings were not more serious, the board
gave Aramony a resounding vote of confidence.65 It did, however, retain the law firm of Verner,
Liipfert, Bernhard, McPherson and Hand to investigate more thoroughly.66
While waiting for the Verner-Liipfert report, the UWA board provided Shepard with
information and arranged interviews for him with key UWA executives.67 They provided local
United Ways with answers to difficult questions that donors might ask.68 They refused to provide
information, however, on the operations of some of the spin-offs, claiming that doing so might harm
their competitive edge.69
The Washington Post Articles
tC
Before the Verner-Liipfert investigation was completed, the Washington Post published a
series of damaging articles by Shepard about Aramony and the UWA.70 Some allegations were that
Aramony occasionally flew on the supersonic Concorde to Europe and periodically brought an aide
along for secretarial purposes at UWA’s expense; that he took a combined personal and business trip
to Egypt with a 20-year-old woman, all at UWA’s expense; that one year, his penchant for
chauffeured services cost UWA $20,000; that he often flew first class and routinely exceeded his
travel budget, some years by more than $100,000; that his 1991 compensation package equaled
$463,000; that his son was hired by several UWA spin-offs; and that Aramony hired friends for UWA
and spin-off positions, despite their questionable credentials.71
No
Other excesses were detailed, but as the articles continued to be published, Shepard’s
description of Aramony’s use of the UWA spin-offs started to paint a more troubling picture.72
Suspicious findings indicated that the spi …
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