In an age when nonprofits
Operating woes and a state inquiry beset Minnesota Public Radio
are being asked to earn more of their support,
the most successful fundraising operation in public radio
has run into financial problems
as well as questions about what it means to be a nonprofit
A pioneer in ventures gradually explains itselfOriginally published in Current, May 27, 1996
By Steve Behrens
Minnesota Public Radio's mail-order operation, extraordinarily successful in the past, is in the news again with money problems and an inquiry by the state attorney general's office.
Based on a leaked memo from Board Chairman Susan Boren to board members, the St. Paul Pioneer-Press reported early in May [1996] that MPR's for-profit sister company, Greenspring, will not contribute royalties to MPR this year or next because of cost increases and operating problems.
On top of that, the memo revealed that the Minnesota attorney general's office is investigating the nonprofit radio network's relationships with Greenspring. MPR's problems with the state apparently did not end when the network released top execs' salary data sought by state legislators.
Both problems may be temporary. Greenspring is "highly likely" to lose money this year, said MPR spokesman Craig Shulstad, but expects to return to profitability next year. And the attorney general's office has not gone public with any charges or objections to MPR practices.
The developments nevertheless hold great interest for public broadcasters elsewhere, including NPR and PBS executives, who hope they will do as well at earning private-sector income as Bill Kling's statewide radio network. Greenspring's sales last year grew to some $153 million, more than five times MPR's budget.
Many also will note how an apparently vigorous private-sector business can encounter financial reverses that render it helpless to subsidize the nonprofit broadcaster. And others will see how the public demands to understand more about these new breeds of sister companies and the ways they reward their successful executives.
Kling, founder and president of MPR, defended his network in an apperance on its regular call-in show May 10, asserting that the MPR-Greenspring arrangement is perfectly legal.
"That's what this story is about,'' he said. "It's the misunderstanding of how a nonprofit has the right ... to operate a for-profit company.''
Disaster, in time for Christmas
Reverses at Greenspring won't require layoffs at MPR this time, says Shulstad, as they did last year. The radio network has been setting aside royalty income in an emergency fund and will maintain its budget levels, he said.
The money problems come from several factors that hit Greenspring at the same time, according to Shulstad. At Rivertown Trading Co., Greenspring's mail-order operation, there were increases in costs of postage and paper for such catalogs as Wireless and Signals. Then Rivertown faced severe headaches with new state-of-the-art order-processing software at a new fulfillment facility--during the all-important catalog-shopping frenzy just before Christmas.
Many orders had to be shipped express at extra cost to get them under the yule tree in time, and other business was lost for the season, Shulstad said. MPR obtained a $2 million loan to help Rivertown through its cash-flow problems, he confirmed.
Rivertown is strengthening its management in finance, operations and information systems, Shulstad said, as well as continuing to invest in the new facility. When operating properly it will process twice as many orders at a lower cost per order than the smaller previous facility, he said.
The operating problems, meanwhile, provided a peg for the attorney general's inquiry. In the harried days before Christmas, MPR sent out a call for help, asking its radio employees to volunteer for paid work at Rivertown. Eight or nine staffers pitched in, working two or three hours apiece, according to MPR. The intercompany aid prompted state legislator Matt Entenza in December to call for an investigation by the attorney general's office, where he worked before election to the state House of Representatives. Entenza had recently passed legislation to require nonprofits' disclosure of salaries of executives shared by nonprofits and their for-profit affiliates.
Phantom stock options
The state probe is covering a broader range of topics, according to the internal MPR Board memo, including certain MPR anonymous donors and compensation plans for senior employees at the Greenspring companies, including Rivertown, Minnesota News Network and Minnesota Monthly. Sheila Fishman, an attorney in the AG's office, would neither confirm nor deny that it was pursuing the probe; MPR says the inquiry was meant to be confidential.
The state is also asking about employment of Kling's and Kigin's wives by the two companies. Shulstad said Kigin's wife, Donna Avery, joined MPR to start the mail-order operation before marrying Kigin, and is now president of Rivertown. Sally Pope, an occasional consultant to MPR, was MPR's development director before marrying Kling, he said.
MPR is paying the price for pioneering in for-profit fundraising, says Steve Rothschild, an MPR Board member who appeared on the call-in program with Kling this month. Rothschild, a former General Mills yogurt executive, runs Twin Cities RISE, a nonprofit work skills development program.
"Being first and being successful ... means that you're going to have people raise a lot of questions,'' says Rothschild. He hopes the friction won't scare other nonprofits away from starting for-profit ventures that could bolster their finances.
Rothschild and other MPR spokespeople say that critics are missing an important distinction about executive pay. Most of Kling's $358,752 compensation last year came from salary and bonuses from the separate for-profit Greenspring, as did most of General Counsel Thomas Kigin's compensation.
"In this case, where the confusion lies, is that we have two executives who work for both companies,'' comments Rothschild. Kling and Kigin are "very competent guys'' who led MPR into its for-profit successes and bring skills to both Greenspring and MPR. The coincidence of filling two top roles at both companies with the same men "probably would never be repeated again,'' but amounts to a bargain for public radio, he says, since it would cost more to hire separate executives.
Rothschild says MPR was trying to guard salary figures for the Greenspring sales force when it opposed a 1995 bill by Entenza that would have required disclosure of the top five salaries of for-profits affiliated with nonprofits. When the bill was amended this year to apply only to executives shared by nonprofit and for-profit, MPR released the information on Kling and Kigin.
Further contract information was revealed in the leaked memo, which said Greenspring executives will receive "phantom stock options'' called "value participation units.'' Shulstad said some contracts call for these bonus-like payments if Greenspring is ever sold.
Withholding pay information has made outsiders curious about the little-understood Greenspring.
"One of the biggest issues was that this nonprofit had a very large and successful for-profit and very few people knew about it,'' says Jon Pratt, executive director of the Minnesota Council of Nonprofits, which backed Entenza's disclosure legislation. After the long controversy, the public knows much more today. "It was way too understated before.''
"This is the plight of the nonprofit sector today,'' says Pratt. "It is both told to be more businesslike, and then attacked for being too businesslike.''
Pratt contends that nonprofits must assure donors and the public by being much more open about the affairs of their for-profit arms than private companies are--especially about where the money goes and who gets what.
"There is a point where executive compensation in this country is out of whack, and it would be a big mistake for nonprofits to follow suit.''
In Kling's case, Pratt adds, there's little doubt that he is responsible for MPR's success, but the public still needs to know where the money is going.
Noel Holsten, the Minneapolis Star-Tribune TV critic, also questioned MPR's withholding of information.
"Somewhere along the line,'' Holsten wrote in commentary, "Kling decided he wanted more than a public-servant's pittance. Somewhere along the line, MPR's board decided he deserved it. There's nothing necessarily wrong with that, but being secretive has fostered suspicions that will linger no matter what the attorney general's 'inquiry' finds.''
Later news: State probe finds no wrongdoing in MPR and its for-profit ventures, 1998.
Web page created June 3, 1996
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Earlier news: MPR's refusal to disclose top salaries was an issue for months
in the Minnesota legislature.