Reference no: EM132250255

CASE 1. Hull House

Hull House was founded in Chicago in 1889 by Jane Addams and Ellen Gates Starr, with the purpose of serving Chicago’s immigrants and helping the city’s poorest citizens improve their lives. Hull House was the flagship of what became known as the “settlement house movement,” including nearly 500 facilities by 1920. Hull House was pioneering and established a model for many nonprofits founded in following years. In 1931, Addams received the Nobel Peace Prize for her work (Wade, 2005; West, 2012b).

Hull House and other settlement houses provided residential facilities and a range of social services. In addition, Addams and house residents became advocates who worked for many social reforms of the early 20th century, including public recreational facilities, child labor laws, juvenile courts, and women’s suffrage. By the 21st century, the Hull House Association had become a federation of neighborhood centers and programs, including job training, homeless services, foster care, child care, domestic violence, and small business development, serving 60,000 people a year in various locations throughout Chicago. In 2012, after 120 years, it was forced to close and dismiss its 300 staff members. Many of its programs were taken over by another nonprofit, Metropolitan Family Services (Wade, 2005; Weber, 2012; West, 2012b).

In its early years, Hull House was supported primarily by private funds raised by Addams. That pattern began to change in the 1960s, when the Great Society programs of President Lyndon Johnson expanded funding for social programs, much of it channeled through nonprofit organizations (West, 2012b). By 2012, Hull House depended on government funds for 85 percent of its budget (West, 2012b). With the economy entering recession in the late 2000s, the demand for services greatly increased, while government support did not keep pace. Hull House reduced its budget from $40 million to $23 million and cut programs, but its debt continued to grow. When it filed for bankruptcy in 2012, it reported liabilities of $10 to 50 million against assets of just $1 to 10 million (Yerak, 2012).

There was disagreement about the causes of Hull House’s demise. The board chair blamed the economic climate, although Hull House had financial problems in 2007, before the recession that began that year (Moyers, 2012). “We should have narrowed our focus even more,” the board chair acknowledged. But he also claimed that the staff had sugarcoated the situation, providing financial statements that were late and failed to reveal the seriousness of the situation, although a former chief executive disagreed with that assessment (Moyers, 2012; West, 2012b). The former CEO was critical of the decision to close and criticized the board for “not understanding the idea of ‘living on the edge’” (Moyers, 2012).

“Hull House is not an isolated situation,” observed Irv Katz, president of National Human Services Assembly. “I have witnessed a couple of national groups that should have merged, but out of stubbornness or arrogance, allowed themselves to go too far down the tube rather than look for a partner” (West, 2012b). The former chief executive of Hull House said that he had suggested two potential partners to the board but that the board rejected them (West, 2012b). The board chair observed that by the time mergers were explored, Hull House had accumulated too much debt to be of interest to potential partners (West, 2012b).

Efforts to save Hull House in its later days included consideration of increased fundraising, with the goal of diversifying revenue sources and reducing dependence on government. But the board did not include members who could provide major support personally or who were connected to sources of wealth. Hull House had little other capacity for philanthropic fundraising. Ian Bautista, president of United Neighborhood Centers of America, cited Hull House’s situation as a widespread problem. In his view, many organizations that were once reliant on gifts, including United Way, have become too reliant on government funds and have “lost a lot of the connections and ability [to successfully raise private funds]” (West, 2012a).

Rick Moyers, a foundation officer and governance expert, blamed both parties for the failure, writing that “Hull House is a sobering case study of governance failure in which neither the board nor the staff seems to have recognized the crisis while there was still time to turn things around” (Moyers, 2012).

Questions Related to Case 

1. Which principles of financial management discussed in this chapter are most relevant to the case of Hull House?