What Are Your Biggest Challenges as CFO?
Being finance chief at a nonprofit may be rewarding, but it’s not all sunshine and rainbows and saving the environment. Ask Sarah Gillman, CFO at the Natural Resources Defense Council. Gillman, former CFO at Save the Children and vice president for budget and financial planning at the Wildlife Conservation Society, has spent much of her career shepherding the finance departments at nonprofit organizations. She sat down with CFO to talk about how NRDC is hoping to grow, what it spends its money on, and how running finance at a nonprofit sometimes requires her to serve two masters. The interview, which has been edited for clarity, follows.
What are your biggest challenges as CFO?
How is what you do like what a for-profit CFO might do? It’s in a lot of ways similar and in a lot of ways different. The similarities would be my day-to-day responsibilities. I’m thinking about planning and strategy, how we link our strategy and our mission to our budgets and our spending and then to our measures. I’m thinking about accounting regulations, how we portray our finances, and how we tell a story using our numbers and reports. I’m thinking about treasury, investment management, working with banks, and getting funds in and out of our organization quickly and efficiently. I’m working on technology, I’m working on mobile device launches, I’m working on security, I’m working on disaster recovery plans.
In terms of differences, a lot of it has to do with working for a mission-based organization. The people I work with care phenomenally about what we do, and they’re there because they’re dedicated to the cause. They’re dedicated to building a better world from an environmental perspective. And that passion infuses everything we do if things go right.
What are you focused on in the regulatory and compliance area these days? From a compliance perspective there’s a lot going on with non-profits. We work with the IRS on tax filings on our 990, which is our main filing describing what we do. Every state in which we do business and in which we have charitable activity requires state filings, and keeping up with those is really important if you’re a nationally based organization. Also, New York City has compliance requirements that we have to follow in terms of the time we spend lobbying and doing other activities.
We’re also constantly following FASB guidelines and updates. The non-profit sector is a key area of focus for FASB right now, looking at changes to our statement of activities and presentation. There’s a ton of focus on investment accounting in the financial statements, and so that’s an area of continued compliance. For nonprofits like NRDC that work overseas we also have other Treasury and OPEC guidelines that we have to follow.
Can you tell us more about investment compliance? Nonprofits have to disclose a lot about their investments and their financial statements. There are pages and pages of footnotes related to our financial-statement disclosure, so we have to level our assets and we have to disclose information about our alternative investments. And many of us have a complex series of investments. We have endowment investments, we have pension investments, we have what are called charitable gift annuity investments, and each has separate disclosure requirements.
What does NRDC invest in? We invest in a mix of different vehicles, and we really try to match our strategy to the time horizon of the investment. We also try to assess the level of risk of an individual investment pool, so the strategy will differ depending on whether the funds are in an endowment which is a perpetual trust or whether they’re short-term operating funds. We invest under the guidance of our trustees and our board of trustees, and they will help us determine what that mix is given the spending horizon and the purpose of our investments. It is usually a classic asset allocation of stocks, bonds, alternative investments, real estate and cash.
Do you avoid investing in funds that conflict with your mission, like fossil fuels? NRDC has long maintained a policy of not having any direct investment in fossil fuels or extractive industries. It’s an area of great focus in our industry right now and great importance to NRDC. We really believe that walking the walk is important for any organization, particularly for an advocacy organization.
Investing in a mutual fund wouldn’t count as directly investing, right? And the fund can choose to invest in fossil fuels and you can’t really control that? That’s correct. If you’re invested in index funds, which are a great strategy for nonprofits, because they’re low cost and also they provide a broad basket of market exposures, you will have that broad basket unless you tailor the index fund.
Is that something people are pushing you to do, get out of those kinds of index funds? It’s certainly an area of great interest for us.
That gets to the heart of the difficulty of being a CFO at a nonprofit, because you’re serving two masters. Right. There’s a law called UPMIFA, the Uniform Prudent Management of Institutional Funds Act, and it requires us to consider a range of issues when we’re looking at investments. We have to consider return and the purpose of an organization. We have to consider the economics and the economic circumstance during a given time period. We have to consider mission too, in terms of what’s appropriate for an organization.
As CFO does that fall squarely on your shoulders? Absolutely. At NRDC, as with many organizations, it is the board of trustees that has the technical responsibility for making investment decisions. But my role is very much related to advisory, preparation and direction, to make sure that we’re working on the most important hot topics.
What do you spend your money on? Our number-one issue is climate change. We’re fighting in court to make sure that environmental laws are upheld. We are defending the Clean Air Act. We’re working with President Obama and his advisers to consider ways to reduce emissions from coal-fired power plants. We’re working on issues related to chemicals that interact with humans. Right now we have a campaign on antibiotics. Eighty percent of the antibiotics in this country are given to livestock to prevent them from getting ill and to make them more saleable. That causes a lot of problems for humans, and so we’re working to improve that situation. We also work to make sure wildlife is protected. We work on energy policy, asking questions like what’s a good location for solar panels? We work on campaigns to change people’s awareness.
Is NRDC itself a sustainable organization? Do you have solar panels on the roof? That’s a great question. Some nonprofits really try to walk the walk. For others it’s not in the DNA of the organization. Sustainability is part of the DNA of NRDC. For example, we sort our trash in the office. We separate it into five waste streams; everybody’s responsible for doing it. Our number-one energy issue is reduction of consumption. How do we use less energy? We have solar panels in our offices in Santa Monica and are thinking about sustainable energy sources wherever. I’m very proud of a major heating and cooling change that we made to our New York office. We switched from number two diesel oil to biofuel for our boilers. We’re putting up a green roof at that office, too.
Where are you growing? One way that we’re growing is internationally and globally. Pollution has no border. We want to make sure that we’re working around the world to combat climate change, keep the water clean, keep the air clean. We’ve just launched a really exciting new program in China, where we’re working with the government to think about carbon pollution limits and what could be put in place there. Our programs in India are really important to us too. We work where people live.
What else are you thinking about? Measurement is a big topic right now. How do nonprofits measure what they do? Let’s set goals. They may be non-financial in nature. How many court cases do we want to win? What do we want to reduce in terms of emissions? How will we measure whether the Los Angeles river is cleaner than it was a year ago or two years ago? And at the end of the year we want to find out whether we achieved the outcomes.
We’re also often measured on overhead. How much are we spending on program services compared to management and general expenses and to development expenses? We think there has been too much of a focus on that type of ratio in measuring what we do. I’d like to see that changed to a more performance-based approach.
You have a long history with mission-based organizations. How did you get where you are? My career has been at the intersection of for-profit companies and nonprofits. I’ve worked on both sides of the fence over the years. I started as a classroom teacher and director of admissions at a private school. I got an MBA and a master’s in educational administration. So I was straddling the business world and the educational world in graduate school. Later when I worked for KPMG in a management consulting practice, my clients were always colleges and universities and nonprofits.
My first job out of college was at an advertising agency in market research. I was 22 years old, and one day I was in a really important meeting with senior executives in a big conference room. I worked really hard on the presentation. And I woke up and I realized we were talking about dog food. I didn’t care about dog food. I knew I had to work on things that I really cared about. Otherwise I would be bored out of my mind and ineffective.
You can make a decent living at a nonprofit. It’s multiples different from what I would be making had I chosen another path. But I thought to myself, if I had a private charity of my own, what would it focus on? It would focus on the environment. It would focus on the arts and it would focus on education. And so those are the causes that I decided that I really cared about and that I wanted to pursue.