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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 rP os t October 12, 1993 The United Way of America: Governance in the Nonprofit Sector (A) op yo 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 This document is authorized for use only by Maryam Deloffre until January 2013. Copying or posting is an infringement of copyright. or 617.783.7860. 494-032 The United Way of America: Governance in the Nonprofit Sector (A) rP os t 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. op yo 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 This document is authorized for use only by Maryam Deloffre until January 2013. Copying or posting is an infringement of copyright. or 617.783.7860. The United Way of America: Governance in the Nonprofit Sector (A) 494-032 rP os t 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 op yo 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. 3 This document is authorized for use only by Maryam Deloffre until January 2013. Copying or posting is an infringement of copyright. or 617.783.7860. 494-032 The United Way of America: Governance in the Nonprofit Sector (A) rP os t 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 op yo 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. 4 This document is authorized for use only by Maryam Deloffre until January 2013. Copying or posting is an infringement of copyright. or 617.783.7860. The United Way of America: Governance in the Nonprofit Sector (A) 494-032 rP os t 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 op yo 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., 5 This document is authorized for use only by Maryam Deloffre until January 2013. Copying or posting is an infringement of copyright. or 617.783.7860. 494-032 The United Way of America: Governance in the Nonprofit Sector (A) rP os t 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 op yo 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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Assignment on Essay


The United Way of America Managerial Issues




The United Way of America Managerial Issues
Organizational management puts into positive focus practices, which are essential in
creating a greater of understanding on the underlying issues within a given organizational
environment. It is vital for business leaders to understand the underlying organizational values,
mission, and vision to develop more critical strategies that can help improve the current focus on
organizational success. The United Way of America is one of the leading charitable organization
in the united states having a had a more considerable influence on the American society second on
to the federal government in providing healthcare and human service programs. However, during
the time of Bill Aramony the organization underwent significant challenges, which led to his early
retirement. Bill left the organization in disarray in dire need for an overhaul. The report provides
essential issues that were detrimental to the company development, and lack of focus on its core
mandate as well as a critical measure as the new Chief Executive officer Kenneth Adam would
employ to ensure that the United Way of American regains its past glory.
The United Way of America background
An important thing to consider in this case is that United Way of America is a charitable
not for profit organization which had its core mandate to help the poor individuals across all the
states in the United States. At the time Bill Aramony was being relieved of his duties, the United
Way of America was one of the most successful charitable organization in the United States. It
mainly focused on providing health care needs and human services to the poor. The organization
was highly engaged receiving funding across different sources including corporate organizations
as well as some employees in the different organization had pledged to contribute to the



organization course a certain percentage of their income mainly due to the high level of focus that
the organization was having at the time.
The adoption of the name United ways of America was aimed at revolutionizing the
company image and diverse its operations to ensure that it kept the changes within the American
society. The changes were based on a previous report that had been published which found the
institution lurking in its mandate since the American society was highly improving while the
services that were being offered by the company had stagnated over the years. The appointment of
Bill Aramony was considered the best option in trying to revolutionize the organization
performance and ensure that it had a national image and representing the needs of the poor within
the United States. Aramony made significant changes, which shaped the company development,
process ensuring that it was highly engaged in creating a very effective environment under which
it would be able to attract major corporate donors, which would help in improving the total donor
funding that the company was having (Lorsch & Watson, 1993).
By the years 1992, the United Way network had attracted more than 2,100 communitybased organizations, which were specially organized to provide community-based human services
through funding from the United Way of America. The local chapter was integrated by the
organization under the same name and logo providing a more excellent link between the local
chapters and the company performance. The local chapters play an integral role in shaping the
organization development through sourcing for funds where many volunteers and donors have
pledged on providing support to the United Way of America.
The organization image ...

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