The churning sector: no storms, at least from a weather perspective.

If March goes in like a lion and out like a lamb, 2007 might well be remembered for all the commotion toward the middle of the year. The latest nonprofit scandal (The Smithsonian) hit the fan in the spring while the summer went out with a howl as animal welfare groups teamed up with their supporters to bring the pressure down on NFL quarterback Michael Vick because of dogfighting charges.

After a much-ballyhooed Democratic takeover of Congress in January, most of the changes affecting the nonprofit sector came from other federal agencies, like the draft Form 990 revision released in the summer by the Internal Revenue Service ORS).

The nonprofit sector continued to grow in 2007 yet software companies serving nonprofits went in the other direction after millions of dollars worth of mergers and acquisitions in the marketplace.

The year burst out of the gates with major moves in January by software companies, which returned by the summer with even more news. Charleston, S.C.-based Blackbaud acquired Target Software and Target Analysis Group in Cambridge, Mass., for $60 million while Convio bought GetActive for almost $18 million. By August, Blackbaud had acquired another company, Indiana-based eTapestry, for nearly $25 million.

Convio also decided to join the ranks of public companies, like Blackbaud and Kintera, filing for an Initial Public Offering (IPO) in August. Convio, which gained attention for Howard Dean's 2004 presidential campaign, is still in the quiet period while its IPO is under review by the Securities Exchanges Commission. The IPO is expected early in 2008. The Austin, Texas-based firm was founded in 1999, raising more than $37 million in four rounds of venture capital funding, and plans to generate $86 million through the IPO.

Kintera wasn't as busy buying up companies as in previous years but it was still busy, only with internal changes. After hearing calls for his resignation from investment firms holding almost a third of outstanding shares, co-founder Harry Gruber stepped down in March, replaced by Richard LaBarbera, while still remaining on the board.

In addition to laying off 16 percent of its workforce, the San Diego-based company announced it would cut expenses and discontinue some products to save about $10 million a year.

'THIS YEAR'S ... (FILL IN THE BLANK)'

As one observer put it, The Smithsonian was this year's The Nature Conservancy, American Red Cross or United Way; in other words, the latest, biggest nonprofit scandal.

Lawrence M. Small resigned in March as general secretary at the Smithsonian in Washington, D.C., following an inspector general's report of millions of dollars in housing and office expenditures and unauthorized expenses. The "lavish or extravagant" transactions were detailed in numerous published reports and ultimately resulted in what amounts to a potential kiss of death: increased scrutiny from Sen. Charles Grassley (R-Iowa), the ranking Republican and former chairman of the Senate Finance Committee. Describing Small's "Dom Perignon lifestyle," Grassley pushed through the Senate a freeze on the Lawrence Small Smithsonian's $17-million budget increase for 2008, before Small stepped down.

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The 65-year-old former banker was replaced as secretary by Christian Sanger, head of the National Museum of Natural History, until a permanent replacement is found.

The museum's Board of Regents, which during the course of Small's seven-year tenure tripled his salary, appointed two committees to examine management operations of its more than two dozen museums and research facilities. In June, the governance committee made recommendations and submitted a 107-page report to the board detailing governance and ethics lapses during Small's tenure.

"It isn't just that the Smithsonian's governance nightmare is overseen by appointees from the three branches of the federal government, including the chief judge of the U.S. Supreme Court, but that they were joined in spurning the basics of accountability by foundation members of the Board of Regents," said Rick Cohen, former executive director of the National Committee for Responsive Philanthropy (NCRP) in Washington, D.C. "Despite grandiose promises to change and improve, and despite high-profile assistance from the nation's top nonprofit leaders, every indication is that the Smithsonian's top leadership--staff and board--still don't seem to grasp the principles of nonprofit and public accountability, or perhaps they think that they're somehow above it all," he added.

"Public accountability and lack of accountability themes has been really troublesome for the nonprofit sector," said Pablo Eisenberg, senior fellow at the Georgetown Public Policy Institute's Center for Public and Nonprofit Leadership. "It's been troublesome because an increasing number of, at least the larger nonprofits, as they are examined by investigative reporters, have really come up short."

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He called the Smithsonian episode "an extraordinary tale of a total lack of oversight and fiduciary responsibility by the board of regents.

"It's a question of a terrible governance structure," he said, impeded by the fact that there are eight government representatives, with no time for oversight, and nine lay members who were, until recently, five "corporate types. It's just a terrible situation."

ACCOUNTABILITY AND GOVERNANCE

Two things from 2007 that might help address the issue of charity governance and oversight are the revised IRS Form 990 that was unveiled this past summer, and the Panel on the Nonprofit Sector's 33 "Principles for Good Governance and Ethical Practice: A Guide for Charities and Foundations."

A draft of the long-awaited revision to Form 990 was the first overhaul of the federal nonprofit tax form in almost three decades and sparked a deluge of public comments into the IRS all summer. The form takes on matters of governance and policies more than previous documents.

No action is likely until 2008 on the new IRS Form 990 revision, said Gary Bass, executive director of Washington, D.C.-based OMB Watch, but the draft that was made public in June "certainly created a bit of a start." The Form 990 likely will be designed by the end of 2007 and published in 2008 for the 2009 filing season.

Based on those early comments this summer, the IRS already has decided to do away with some items in the draft, such as expense ratios on the summary Page 1. But nonprofits might have to report revenue and expense totals for two years. A new Schedule O will allow nonprofits to include information to present a fuller picture of activities.

The Panel's new principles were re leased in October to mixed reviews. Praised for their thoroughness and completeness, the principles won't necessarily apply to all organizations and are voluntary, something critics targeted.

"I've never seen any cases of serious self-reform," said Eisenberg. Some believe there's only a few bad apples in the barrel, but he maintains, "there are a lot of bad apples; the barrel is not getting any smaller and the apples are not getting fewer in number."

EXECUTIVE MOVES

Whether or not it signaled the forthcoming exodus of retiring nonprofit executives, some big names stepped down during 2007, or at least announced their intentions.

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Robert Goodwin's retirement after 15 years as CEO of the Points of Light Foundation (PoLF) in Washington, D.C. paved the way for a merger with Atlanta-based Hands On Network (HON). The groups officially merged Aug. 1.

Although they started from opposite ends--one entrepreneurial and organic, the other out of a presidential vision--the merger between PoLF and HON has been thus far one of synergy.

"What we found is, that when you overlaid our two visions and missions, there was actually not very significant difference," said Michelle Nunn, co-founder of HON.

"We did have different approaches to how we accomplished those things," added Nunn. "But that made it easier because, in fact, what we have are some complementary assets." According to Nunn, with the increased efficiency the 2008 budget for the merged organization will be approximately $34 million. The two organizations had combined budgets of about $40 million.

Nunn, daughter of former U.S. Sen. Sam Nunn, will head the new entity, which currently uses the moniker "The Points of Light and Hands On Network."

After more than a year of discussions, the merger was announced at the 2007 National Conference on Volunteering and Service in Philadelphia this past July.

According to Nunn, the group is currently grappling with issues of combining staffs, ensuring that the federal investments PoLF has traditionally received continue, and raising private sector dollars. The location of its headquarters is yet to be determined, said Nunn, however there will be a presence both in Atlanta and in the nation's capital.

"Both organizations are trying to now use the merger as an opportunity to define the future of how volunteering will happen versus just looking back on what we were doing," said Nunn. "We want to make sure that we are on a continued upward climb around volunteering and civic engagement."

Other retirements this year read like a sample who's who of the nonprofit sector. After 36 years with the New York City-based Ford Foundation, including 12 as president and CEO, Susan Berresford announced on Sept. 28 she will retire, effective January 2008.