In addition to the governance and tax issues we deal with on a daily basis, there are a number of governance and legal distractions we tend to see repeated over and over again in the nonprofit community. The following list of smart moves are traits that CEOs of clients who successfully avoid these distractions tend to share:
1. Asks Forgiveness, Not Permission. I receive calls from nonprofit CEOs who are struggling with their boards. I am also asked by boards to intervene when there is a an issue with the CEO. What I have learned is that great CEOs do not overly confer with the Board. Instead, great CEOs understand that it is their job to implement the Board’s strategy within the scope of the strategy, policies, and budget the Board has set. Too much “checking-in” can have the unintended consequence of inviting the board to micro-manage. Conversely, scribbling too far outside the lines of the board approved strategy, policies, and budget can get a CEO fired.
2. Assembles a Trusted Team of Professional Advisors. Great CEOs form long-term relationships with a banker, an insurance broker, a lawyer, and an accountant who understand non-profits. Its best to form these relationships when the organization is doing well so that the organization will have strong relationships to fall back on when problems arise.
3. Understands Legal and Compliance Duties are Not Aspirational. Great nonprofit CEOs take their legal, tax, contractual, and other duties seriously. Legal and tax problems are not only expensive to correct, but can be particularly devastating to nonprofits that rely on donor goodwill. Unlike for-profits that can usually correct compliance problems by writing a check, compliance issues for tax-exempt organizations can lead to revocation of tax-exempt status which usually spells the end of the organization.
4. Uses a Professional Employer Organization (“PEO”). Employment practices liability is the leading risk for nonprofits. PEOs enable nonprofits to cost-effectively outsource the management of human resources, employee benefits, payroll and workers’ compensation to human resource professionals. Great CEOs know that outsourcing high risk functions reduces risk and helps the organization focus on its mission.
5. Protects Trade name/Trademark/Donor Lists. All successful organizations have valuable intangible assets. Nonprofits trade on their reputation and public goodwill. A nonprofit that is appealing to donors likely has a distinctive trade name and trademark as well as valuable donor information. Great CEOs know that failure to protect these assets can be devastating to a nonprofit.
6. Expects/Asks for a Reasonable Salary. Great nonprofit CEOs know that if they don’t take care of themselves, they can’t take care of the nonprofit’s business. Many nonprofit executives work for very little early on and hope to receive a severance payment to make up for it when they retire. If the nonprofit is a charity, paying an insider money the nonprofit does not legally owe for services already rendered raises private inurement and excess benefit issues. Great CEOs build a reasonable salary for their services into their budget.
7. Trusts, but Verifies. Great CEOs implement checks and balances that secure and protect the nonprofit’s funds and other resources. They know that just because they are working in the nonprofit sector, they still need to conduct business on behalf of the organization with the same level of diligence and care they would use if they were running their own business. Dishonesty, sadly, is not limited to any particular sector.
8. Creates a Sound Succession Plan. Great CEOs do not leave a leadership gap in their wake. They know that to be sustainable, the organization needs to develop talent that can pinch hit and take over if necessary. Great CEOs identify and nurture potential leaders within their organization.
9. Selects Professional Statutory Agent. Great CEOs know that a statutory agent receives crucial documents such as service of lawsuits and court filings as well as notices of potential problems with a nonprofit’s corporate status. These matters are simply too important to delegate to a volunteer.
10. Doesn’t Over Rely on Pro Bono Services. Great CEOs know that you getwhat you pay for. Even if that lawyer or accountant who serves on thenonprofit’s board has a great reputation, that does not mean the boardmember has the specific expertise required or the time to work on theorganization’s matters for free. Shop around for professional serviceproviders and don’t be afraid to ask for alternative fee arrangements.Many professionals will offer more favorable fee arrangements forlong-term clients.