Category Archives: Governance

IRS 2012 Work Plan – What’s New for Nonprofits

Each year, the IRS publishes a report detailing what its focus will be regarding nonprofit organizations and compliance during the year to come. The following are some of the highlights from the 2012 Exempt Organizations Work Plan. Continue Reading

Mechanics of a Nonprofit Merger

Merger proposals are being prompted by reduction of funding sources, the tight economy, the need for succession planning and a desire to consolidate expenses and increase capacity. Also, many funders prefer to deal with fewer providers of the same programs or services and encourage mergers and other forms of collaboration to reduce overhead and increase capacity. There are special challenges for nonprofits considering a merger. Factors, such as increased capacity and cost savings, drive the deal. Because these benefits can be more difficult to quantify, a proposed merger can feel threatening to a nonprofit board who feels they may lose power and influence. Continue Reading

Yes Virginia, Nonprofit Directors Really Can be Held Liable for An Insolvent Nonprofit’s Debts

When serving as a director or an officer of a nonprofit organization, a director’s duties shall be discharged: (i) in good faith; (ii) with the care an ordinarily prudent person in a like position would exercise under similar circumstances; and (iii) in a manner the director reasonably believes to be in the best interests of the corporation. These duties are owed not only to the corporation, but also to its creditors. In discharging duties, a director is entitled to rely on information, opinions, reports or statements, including financial statements and other financial data, if prepared or presented by one or more officers or employees of the corporation whom the director reasonably believes are reliable and competent in the matters presented as well as certain experts and committees. However, a director is not acting in good faith if the director has knowledge concerning the matter in question that makes otherwise permissible reliance on others unwarranted. Continue Reading

Control and Influence – Balancing Nonprofit Governance Rights Among Stakeholders

We have blogged about the phenomenon of nonprofit hostile takeovers and the fact that no one owns a nonprofit. However, there is always control. Although nonprofits generally lack shares that can be owned and transferred, there are many ways to ensure a level of control or influence over a nonprofit entity. Those seeking to control a nonprofit or balance governance rights among different stakeholders need to understand the available options. Continue Reading

Nonprofit Law Jargon Buster: What is an Endowment?

Black’s Law Dictionary, 9th ed., defines an endowment as: A gift of money or property to an institution (such as a university) for a specific purpose, esp. one in which the principal is kept intact and only the interest income from that principal is used. This is the popular definition familiar to most nonprofit executives.… Continue Reading

Advantages and Disadvantages of Term Limits

When forming a new nonprofit corporation, one important consideration for incorporators is whether or not term limits should be imposed on members. Additionally, incorporators need to consider whether or not terms should be successive or staggered. There are many pros and cons for both sides of these arguments. However, in our experience, there are more advantages to term limits in the vast majority of cases. Also, we tend to favor staggered terms. Continue Reading

Lessons to be Learned From the Arizona Fiesta Bowl

Could one man really do that much damage to an Arizona institution as high profile and important as the Fiesta Bowl? More likely, the nonprofit scandal of the year was a group effort fueled by a dysfunctional board. The Fiesta Bowl board bears all the hallmarks of a board more interested in administering than governing the organization. Still, there are lessons to be learned from the Fiesta Bowl’s governance and oversight failures. Continue Reading

Memorializing Nonprofit Board and Committee Meetings

Because minutes hold such legal importance, it is necessary to make certain that every organization has a policy of recording minutes in such a way that ensures that the minutes accurately reflect the wishes and actions of the board of directors; however, all language which might be used to the company’s disadvantage in the future should be eliminated. Minutes should be worded in a way that is clear and concise and accurately conveys the meaning of the action taken. Continue Reading

Nonprofit Law Jargon Buster: What is Proxy Voting?

Proxy voting is legal mechanism for a member of a voting body to delegate his or her voting right to another member of the voting body. In the context of nonprofit corporations, voting bodies include the board of directors as well as voting members. Some nonprofit corporations rely on proxy voting because it allows directors or members who have confidence in the judgment of other directors or members to vote for them and allows the voting body to convene a quorum of votes when it is difficult for all members of the voting body to attend. In proxy speak, the individual delegating his or her voting authority is referred to as the “principal” and the individual exercising the delegated voting authority is referred to as the “proxy” for the principal. Continue Reading

Non-profit Directors and Trustees – Should Board Service Pay?

Trustee compensation is a sensitive topic in the philanthropic world. Many people believe that board members should serve out of a sense of giving back to their community. However, the philanthropic world is diverse and there are many positions that require extraordinary talent and an extraordinary time commitment to lead them. Nonprofit organizations are also increasingly complex and subject to complex rules and that make significant demands on that talent. Increasingly, board members face the potential for liability if they fail to fully adhere to these complex and fast changing rules. Continue Reading

Nonprofit Coup d’Etat

We are used to hearing about hostile takeovers of for-profit companies but a lesser known phenomenon is the hostile takeover of a nonprofit organization. Nonprofit takeovers can occur anytime factions develop within a nonprofit. Sometimes incumbent board members are removed in favor of new board members with a different policy agenda. In other cases, a… Continue Reading

Six Smart Moves Great Board Chairs Make

3. Think Big. Boards without great leadership can get bogged down in the minutia. The minutia include the compliance and oversight responsibilities of the board. While it’s important to do these things well, it’s not the organization’s raison d’être. Great board chairs help steer the board clear of this phenomenon by keeping the board focused on their vision of the impact the board wants to make on the community the organization serves. Great board chairs understand that focusing on the organization’s breakthrough goals rather than busywork keeps the board energized and engaged. Continue Reading

Nonprofit Bylaws – What to Include and What to Leave Out

It is important to take a thoughtful approach when drafting or revising bylaws. Boards and board committees sometimes spend months or even years trying to draft the perfect set of bylaws . Too often, they look to bylaws of other nonprofit organizations or samples gleaned from the Internet with no regard to whether the bylaws match the structure and style of the organization or comply with state and federal law. Unfortunately, this approach usually leads to confusion, delay, and conflict on the board. The better practice is to work with a knowledgeable attorney from the beginning, starting with a compliant template, and tailoring it to the needs of your organization. Continue Reading

Top 10 Smart Moves Great Nonprofit CEOs Make

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. Continue Reading