Archive for the ‘Boards of Directors’ Category

Lawyers As Nonprofit Directors – Maximizing Opportunities, Mitigating Risks

March 17, 2013
By Guest Poster Lesley Rosenthal
Note:  This article is a recap of Lesley Rosenthal’s presentation at Proskauer’s 17th Annual Trick or Treat Tax Exempt Seminar, November 29, 2012Attorneys can reap enormous rewards by serving on nonprofit boards.  Lawyers derive tremendous personal satisfaction in governing an organization that is meaningful to them.  They can do the public good by participating in a charity that feeds the poor, heals the sick, enlightens through culture and education, or preserves the environment.

Nonprofit board service is prestigious, and invaluable for professional networking.  It is also a great remedy for the ennui that sometimes sets in when lawyers work inside big law firms, corporate departments or government agencies, and a cure for the isolation of solo or small-firm practice.  A lawyer who serves as a nonprofit trustee is likely to quickly become a trusted and valued member of the team, whose individual contributions markedly enhance a worthwhile enterprise.

Board service may lead to (or in some locales even qualify as) pro bono work.  Suitable pro bono opportunities are sometimes hard to find, particularly for corporate or transactional lawyers.  Most important is the opportunity to serve the public interest in a meaningful way, to bring professional skills to bear in a collegial context that is different from an otherwise adversarial professional realm.

Why Nonprofit Boards Want Attorneys

For their part, organizations wish to recruit lawyers to their boards for a variety of reasons:  legal expertise and perspectives, stature, good judgment, negotiating skills, and of course financial contributions.  The fiduciary duty of care requires that board members attend meetings and pay attention to the governance of the organization, overseeing management in fulfillment of mission. In addition, most nonprofit board memberships come with a (stated or tacit) expectation that each member will donate or solicit funds on behalf of the organization.  Some organizations have a stated amount, others simply ask that each board member give an amount that is meaningful to him or her.

In addition to governing and personal giving, board members may be expected to serve in an external relations role, advocating for the organization and introducing it to new sources of funding such as private philanthropists, donor advised funds, government funders, corporations and foundations.

Apt Roles for Lawyers on Boards

By their training and professional expertise, lawyers may be particularly suited to fulfill certain roles on boards, for example:

  • Legal Committee
  • Governance committee
  • Audit committee
  • Public affairs/government relations committee
  • Corporate secretary role
  • Ad hoc committee to review and update by-laws
  • Development (fundraising) committee
  • Grants committee (for grantmaking organizations)

In many nonprofits, particularly those with larger boards, much of the work of the board is carried out through committees, whose activities and recommendations are memorialized in minutes and regularly reported out to the board for discussion, refinement and ratification. Attorneys may be particularly well-suited for the minute-taking role as well as for keeping track of the organization’s adherence to its policies and by-laws.

Some Cautionary Notes

Lawyers joining nonprofit boards would do well to observe some cautions.  Many nonprofits, particularly smaller or less-sophisticated organizations, may erroneously believe that having a lawyer on the board is the same thing as having a lawyer.  They may not recognize that the establishment of an attorney-client relationship is a formal matter, with an engagement letter (legally required in some states) and stated professional understandings as to scope of the representation, fees/fee waivers, and expenses.  For their part, the lawyers may not be in a position to deliver legal services to the client for any number of reasons: core competency, time and availability, conflict of interest, lack of malpractice insurance, lack of bar admission in that state, or otherwise.

When attorneys do agree to represent the organization as well as serve on its board, they should be mindful of the following risks:

  • Document the inception, scope and terms of the attorney/client relationship.  Some states’ professional responsibility rules require a written engagement letter setting forth these matters.
  • Avoid private inurement – nonprofit resources being used improperly to enrich the attorney or the law firm.  The actuality or appearance of a prohibited private inurement relationship between the organization and the attorney can avoided by providing services pro bono.  If the engagement is on a fee-bearing basis, the attorney should be sure to follow the organization’s conflict-of-interest policies and, once the relationship is cleared by independent directors, the attorney should be sure to follow requirements for ongoing disclosure of fees.
  • Privilege waiver can occur if the attorney/director fails to flag when she is taking off her director hat in the board room and commencing the rendering of legal advice as counsel.  See, e.g., Deutsch v. Cogan, 580 A.2d 100 (Del. Ch. 1990) (holding that lawyer’s communications with other board members or management were while she was wearing her “director hat” and not her “lawyer hat,” and that the communications are discoverable in litigation); see generally Model Rule of Professional Conduct 1.6.
  • Conflicts of interest can arise, for example, if the lawyer is asked to give a legal opinion on board actions in which the lawyer participated.  Another example: if the organization is party to a litigation, the lawyer may be unable to try the case on behalf of the client, especially where he may be a witness.
  • Gaps in liability coverage: Some legal malpractice insurance underwriters will not cover either the lawyer or her firm if one of its lawyers serves on the board of the client; other policies will provide coverage only where the lawyer was acting as a lawyer but not as a director.  This can lead to disputes between the D&O carrier and the malpractice carrier about whether the lawyer was acting as a lawyer or as a director, and ultimately can lead to a lack of adequate coverage altogether.
  • Higher standard/greater liability:  will a director who is also a lawyer be held to a higher standard in what they know or should know about company matters?  This question has been litigated and answered in the affirmative in a number of states in the for-profit context.  Query whether courts would apply a heightened standard to a lawyer acting as a director of a charity.

The opportunities and pleasures of serving on a nonprofit board are manifold.  Lawyers should embrace the chance to lead, learn and grow.  At the same time they should be mindful of the potential pitfalls of undertaking a dual role, and take appropriate steps to mitigate the risks.

To locate board member opportunities in New York City visit BoardServeNYC.

Lesley Rosenthal is Vice President, General Counsel and Secretary, Lincoln Center for the Performing Arts and author of the bestselling Good Counsel:  Meeting the Legal Needs of Nonprofits (John Wiley & Sons 2012)

Dear Nonprofiteer, Is the banquet deductible?

March 5, 2013

Dear Nonprofiteer,

I am the Development Manager for a small nonprofit that operates on a budget of around $500,000 a year. Something came up this year for the first time, and I’d like your opinion.

The ticket price to our annual benefit is $100, and we routinely send acknowledgements to guests that $50 of their $100 ticket is deductible. This is a fairly accurate estimate of the value of the food, drink and entertainment cost, and according to our business manager and auditor, standard best practices (as well as the way benefit tickets have been handled at every nonprofit for which I have ever worked, during the past 20+ years).

This year, we got an RSVP from one guest with a note saying, check to follow. When the check arrived, it was from a donor advised fund with a letter stating that endorsement of the check would confirm that the full amount was tax-deductible and that no goods or services had been received in exchange. My Executive Director and I felt that to treat this differently from all other benefit ticket purchasers would be inappropriate, and compromise the integrity of our nonprofit. I contacted the donor advised fund representative, and explained the situation. I made it clear that the woman would be welcome at our event, but that we would not deposit the check without further instruction from him.

At the benefit, the woman handed me a check for $50. She was very kind, but basically said, these things are done all the time, there’s a fine line, you are on the wrong side of it, but “you’ll learn.” She also told me that the board member who invited her will be speaking with me about this.

I realize this is a relatively small amount, but it’s a larger principle. One of the reasons I value my job at this particular nonprofit is that there is a strong commitment to integrity, consistency and transparency here. My ED and I both feel that we made the right call; but this is very likely not the end of it, as we haven’t heard yet from the board member.

What do you think?

Sincerely, Just Following The Rules

Dear Following:

It’s not a matter of what the Nonprofiteer thinks; it’s what she knows, and you know and your Executive Director knows.  There’s nothing at all “fine” about the line between deductible and non-deductible payments: the IRS permits deduction of the amount that goes to the charity, and not of the amount that goes into a guest’s belly.  It’s what any lawyer would refer to as “a bright-line rule.”  So maybe the banquet guest just got her lines mixed up.

Seriously, this isn’t even a close call.  What this person has asked you to do is to lie to the IRS on her behalf.  Let’s leave aside ethics, integrity, all those mushy things.  Lying to the IRS is a really bad idea–just ask Al Capone.

Now, is your agency likely to be audited for breaking the rules (also known as “the law”)?  No.  Nor is the guest likely to be audited for misreporting her charitable contributions.  But that’s not a reason for you (or her) to pretend that she received no value for the money she handed over.  You were wise not to endorse the donor-advised fund’s check embodying such a pretense, and you will continue to be wise by not issuing a tax-deductibility receipt for the $50 personal check she ultimately forked over.

If and when the Board member comes at you, you will reiterate what we all know to be true: that the IRS does not permit you to certify the food, drink and entertainment costs as tax-deductible contributions, and that you’re sure she wouldn’t want an agency she governs to participate in such a dangerous and false maneuver.  If she presses, observe that the guest may make any use she pleases of her cancelled $50 check.

If the Board member continues to press, turn the matter over to the Board president.  It’s her/his responsibility to make sure no one member of the Board in any way tarnishes the reputation of the whole group.  If s/he resists addressing the issue, try using the words “tax evasion,” and if s/he continues to resist, try using the word “fraud.”

You don’t have to be in the business of judging or disparaging the guest (though she richly deserves it. Wealthy enough to have a donor-advised fund and wailing about $50?).  But you likewise don’t have to be in the business of abetting her dishonesty.  And if anyone argues, “Well, it’s only $50,” make sure to agree.  “Our agency’s good name isn’t for sale,” you’ll say.  “But if it were, it would cost a hell of a lot more than $50.”

Keep on abiding by the law, and may the Force be with you.

Dear Nonprofiteer, When is a Board member not a Board member?

February 28, 2013

Dear Nonprofiteer:

I came across your website as I was searching for information on Board members’ volunteering in programs. I’m wondering if you might have some advice on a situation I’m trying to handle.

I work in a service agency, which relies heavily on volunteers. Recently, one of our volunteers became a Board member. She has continued volunteering in the program and a couple of issues have come up that the program director would normally address quickly and easily with a volunteer. However, because this volunteer is now also a Board member, there is a hesitation because she is somewhat of a boss.

The issue has been brought to the attention of the Board president.  He and the program director have different ideas on how to handle the situation.  The president wants to handle the situation one on one because he doesn’t want to discourage other members from volunteering more.  The program director wants a limit on how much time a Board member can spend volunteering in a program.

I’m the Executive Director and can see both sides.  I’d like for the president to deal with it one on one, but to then adopt a policy/guidelines for Board members as volunteers to avoid conflicts of interest.  I can see where this particular person likes to make decisions and that easily oversteps the program director’s role.

I’ve been searching on line for a policy around this, but have found nothing.I would greatly appreciate any insight or resources that you might have to help with such an issue.

Sincerely,

Clowns to the Left of Me, Jokers to the Right

Dear Clowns:

This is only a problem because of what seems to be a fundamental misconception about the role of Board members, as opposed to the Board as a whole.  No individual Board member is “somewhat of a boss;” in fact, from the standpoint of the program director, the only boss she has is you, the Executive Director.  You, on the other hand, answer to the Board as a whole, and the Board as a whole has the right to hire, evaluate, discipline and if necessary fire you if it’s not satisfied with the job you’re doing.

But there’s a reason the Nonprofiteer keeps repeating “as a whole . . . as a whole.”  Individual Board members have no supervisory responsibility for personnel, even when they’re members of the Personnel Committee.  Personnel decisions belong to the Executive Director, except for decisions about the Executive Director’s tenure which belong to the Board—all together now—as a whole.

So the Nonprofiteer doesn’t see any reason why there should be a policy prohibiting Board members from volunteering in the program, or limiting the amount of time they can spend doing so.  What there should be is

  • a statement by the Board president to the volunteer in question that there seems to have been some confusion, what with her going from volunteer to Board and back again, and that it needs to be clear that when she’s a volunteer she’s not a Board member.  He doesn’t need to go into the subtleties of her general lack of power as an individual Board member.  He just needs to tell her that in the land of program, the program director is king, and thus that she should expect the program director to treat her exactly as she was treated before she joined the Board—that is, to supervise her.
  • another statement by the Board president to the program director reiterating what he said to the volunteer and reassuring  her that she’s not dealing with “somewhat of a boss” and should therefore not hesitate to resolve the problem with this volunteer as with any other.  And
  • a third statement by the Board president to the entire Board at the next Board meeting, leaning again on the “confusion” meme: “We’ve had some questions about the circumstances under which Board members are welcome as program volunteers.  So I thought I’d make clear that each of us is welcome under all circumstances—but when we’re program volunteers, we shed our Board identities like fur in the summertime.  None of us is enforcing policy, or overseeing staff, or evaluating operations—we’re just volunteering.  Which ought to be a great relief for each of us!”  Thus he’ll encourage Board members to volunteer without having them confuse their collective governance role with their individual participation role.

The reason you can’t find any relevant policies is that this isn’t an occasion for policies—it’s an occasion for common sense applied to clearly-understood roles.  Or, in other words, there’s no need for a conflict-of-interest policy because individual Board members have no recognizable interests; their task is to participate in group decision-making about what’s good for the agency.

If you also have a Board Personnel Committee that tries meddling with individual personnel decisions (as opposed, say, to writing policies and procedures applicable to all personnel), then you have a bigger version of the same problem and need to have a bigger discussion about the difference between the Board—what?—as a whole and individual Board members.

But there’s no reason either the problem or the discussion should lead you to limit Board members’ participation as program volunteers.   As a Board member told the Nonprofiteer just last night, the main satisfaction Board members get from their often thankless jobs is contact with the people you serve.  Unless your goal is to produce unhappy Board members and a short-handed program director, you don’t want to restrict or prohibit that contact.

Or, more pithily: damn the Board member!  Full speed ahead!

Dear Nonprofiteer, If I smell a rat, should I just hold my nose?

February 4, 2013

Dear Nonprofiteer,

I’m dealing with a tough situation and I could really use some help. I live in a  quiet rural community outside of a large town.  A neighbor moved away many years ago and turned his home into a “non profit” event center, mostly doing a huge wedding business (illegally by the way, as they’ve been asked to cease and desist by the county).

They now seek to legalize and expand their already enormous operation.  The neighboring residents object to this expansion due to noise, traffic and pollution. (They are looking to go to 7 days a week and build additional events structures.)

There is a hearing coming up and in an effort to find more info to bolster our argument, I’ve been looking into their “non profit”.

I discovered that one of the “non profits” they filter money through is a “therapeutic riding center” for disabled children located in another community.  The manager of this non profit is the daughter of the people in question, and they are also the only 2 officers of the non profit.

There is no website, no phone number and the address is an office building.  If you Google any other “therapeutic riding centers” they all have websites and info and photos of beaming disabled kids.

I smell a rat. How do I go about having them looked into by the powers that be?

Signed,

If I Don’t Watch Out For The Neighborhood, Who Will?

Dear Neighborhood Watch,

What you’ve described is such a tangle that it reminds the Nonprofiteer of those What’s Wrong With This Picture? puzzles in which the task is to identify the 47 not-very-hidden mistakes in the drawing.  Or, in other words, a law school exam.  So she’ll take an issue-spotting approach.

Issue #1 is a building-and-zoning problem, namely, that your neighbor is operating an illegal business.  If a cease-and-desist order has been issued and ignored, you should notify the sheriff and/or the county board and ask what is being done to enforce the order.  If you receive no response, send a copy of the letter to the local newspaper.  Voila: instant enforcement.

Issue #2 is another building-and-zoning problem, namely, that your neighbor wishes to expand his/her illegal business.  Obviously he can’t do that unless and until he comes into compliance on his current activities.  Probably in your efforts to compel him to do so, you should also copy the county executive and/or the zoning administrator and/or the Zoning Commission, and point out that his previous failure to comply with the law suggests that he’s not the sort of person to whom one would wish to grant additional license.

So far nothing we’ve discussed has anything to do with nonprofits. You’ve taxed only the Nonprofiteer’s long-rusty powers as a zoning lawyer. No business, whether nonprofit or for-profit, can operate in violation of the building and zoning laws.

But then we come to the nonprofit part, where once again there are two issues.

Nonprofit Issue #1: Can one operate a legitimate nonprofit without a Website?  Merely to ask the question is to answer it: of course.  Perhaps the group is spending all of its money on helping disabled children and none on an office or a Website.  But if parents of disabled children are unable to access the group’s services—because there’s no phone number and letters to the address go unanswered—then there are grounds for concern.  Contact the state agency responsible for the oversight of nonprofits (in some states this is the Attorney General’s Office, in others the Secretary of State’s Office, in still others a separate Charitable Bureau) and explain that you’re unable to access the services of this nonprofit and therefore you wonder if it is in fact pursuing its mission.  Copy the newspaper and again you should see fairly prompt action in the form of at least a preliminary investigation.

Nonprofit Issue #2: Can one operate a legitimate nonprofit in which the sole employee is the child of the sole members of the Board of Directors?  While this is unattractive (to say the least), it’s actually fairly common among small and newly-formed nonprofits.  All the work is done by the founders and their relatives, because they’re the only ones aware of the agency and passionately committed to its mission.  Provided that the group’s bylaws contain the conflict-of-interest policy required by the Internal Revenue Service, employing relatives is not automatically grounds for presuming that the agency is a sham.  On the other hand, the fact raises enough questions that you might include it in any letter you send to the charitable oversight authorities pursuant to Nonprofit Issue #1.

Frankly, though, the real concern here is that your neighbor is disturbing you by operating an unlicensed roadhouse.  Let sleeping nonprofits lie, and focus on shutting down the event space so you can get some sleep yourself.

Dear Nonprofiteer, . . . And we all lived happily ever after, thanks to you!

December 25, 2012

Dear Nonprofiteer,

It was at this time one year ago that I wrote to you about my horrible “School Director” job. Your reply helped me see that it was not only horrible, but hopeless.

For six months, I’d been optimistic in thinking the situation couldn’t possibly be as absurd as it seemed. Surely there was some logical (and legal) explanation for all the things that made my jaw drop, one after another — I just needed to understand how it made sense. (It didn’t.)

I repeatedly asked for clear communications with the board, and for clarity about my relationship with them individually and collectively. That too was sure to happen any day, I thought, and everything would be cleared up and straightened out. (They didn’t tell me when the meetings were scheduled, let alone allow me to speak with them.)

You may recall that the Board Chair was also Artistic Director of the organization and director of the “professional” performing group; also, the highest-paid employee, hour for hour. Yet as a resident of another state, this Uber-Boss was a very rare presence in the building, with no direct knowledge of school operations or clientele.

Worse, all of the other board members were involved in the organization—performer, teacher, parent, etc., so they were ever-present in non-board-member roles. I wondered things like: If a board member is acting in her role as a teacher, must I take orders from her? If a board member is acting in her role as a parent volunteer, must I acquiesce to policies that favor her child? And is the Uber-Boss EVER not the boss of everybody? (Answer: No.)  Like a team of Gladys Kravitzes, they scrutinized me minute-by-minute and gossiped in personal phone calls. (You know the game of “telephone,” where the original statement gets garbled? Like that, except it started out garbled.)

I was a subordinate not worth listening to until the day I resigned. Then they wondered why! (I didn’t bother to explain.)

It stung for a long time, and it still pains me to think about it. I put my heart and soul into my work there, and accomplished a lot for them in a short time. Goodness only knows what was told to faculty and parents, as only one parent has made any contact with me since I left. The organization is in my community, and I dread running into board members in the grocery store. It’s like some special nonprofit arts brand of PTSD.

I only wish I’d had your advice sooner, because you were so right. My “normal” is back to normal, free from being bossed, berated and belittled. I work with wonderfully creative people, with mutual respect and appreciation, and make more money with far fewer hours and none of the stress. And when “Board of Directors Horror Stories” come up among colleagues, I can top them all. Easily.

Thank you for helping me restore my sanity! It’s been a good year, and no doubt 2013 will be even better. Signed,

Happily No Longer Hanging

Dear Happily:

That’s terrific–“some special nonprofit arts brand of PTSD.” Over Christmas dinner the Nonprofiteer was telling her own tragic story of working in the nonprofit arts world, and though it’s been nearly 30 years, she can taste the bile in her throat every time the subject comes up. So don’t be surprised if you’re not fully recovered a mere six months later.

The other really powerful observation you’ve made is that you weren’t worth listening to until you resigned. It’s not clear why nonprofit Boards are so frequently deaf until it’s too late, but it’s certainly the case; and then they wonder why they have trouble keeping personnel!

Finally, you’ve offered a word to the wise: nonprofit arts Boards dominated by people whose primary connection to the organization is through their non-Board roles are nonprofit arts Boards looking for trouble. If roles and responsibilities aren’t clear, nothing gets done and everyone blames everyone else. People should have to choose how they want to be involved in the organization; and, if the artists’ fear is that the Board will take the group away from them, the artists should arrange to be represented on the Board—but as a group, not as individuals. Representing your fellow artists is one thing; feathering your own nest is something else, and the latter is conduct unbecoming a Board member.

Thanks for letting us know you made a change for the better—you never know who may be out there in nonprofit arts hell, reading and being inspired.

Dear Nonprofiteer, If a Board member’s gift falls before year-end, does it make a sound?

November 30, 2012

Dear Nonprofiteer,

I serve on the board of a nonprofit. 100% of our board gives in some form monetarily throughout the year through event sponsorship, general giving, donations at events, etc. With all the year-round giving, many of us were not making a gift to the annual appeal. Recently, we were informed that funders look at what percentage of our organization’s annual appeal total comes from board members. This has the board scrambling to make sure everyone gives a significant sum here at year’s end. It also has many of us questioning the timing of our gifts for the next year. Do we not sponsor the gala or give to summer programs, but instead save that donation for the annual appeal? There is only so much to give for many of us.

While I know that funders want 100% of board members to give, the desire for that giving to come in the form of the annual appeal is new to me. I find it especially surprising that they would ask what percentage of the annual appeal comes from board members. Have you heard about this stipulation? Is it widespread?

Obviously we all want what is in the best interest for our organization to be positioned for future funding. However, I don’t want to lose the help and momentum the organization gets from year-round board giving if it isn’t necessary.

Signed, Surprised and Scrambling

Dear Surprised:

First, let the Nonprofiteer congratulate you on having a Board that gives 100%. It’s bizarre to imagine that some additional hurdle should be placed in the way of a Board which has already cleared that one. Institutional funders are notorious for always asking for one more thing; but this hoop is a brand-new one.

The Nonprofiteer suspects that what we have here is a failure to communicate*—that is, a misunderstanding of what the funder actually wants to know. If the program officer asks (or the guidelines say) “What percentage of your annual fund comes from your Board members?” the English translation is most likely, “What percentage of your annual donated income comes from your Board members?” NOT “Which appeal do your Board members respond to?”

The funder’s concern may be for institutions whose Boards donate 75% of the group’s contributed income, reflecting a failure to reach out into the broader stakeholder community. Conversely, the funder—which mostly doesn’t deal with Boards as generous and active as yours—wants to know if Board member donations are significant or merely pro forma: if every single member of the Board gave $1, that wouldn’t be the kind of Board participation the foundation wants to see, or intends to spark through its inquiry.

If in fact the funder cares about the Board’s response rate to the annual appeal, meaning the end-of-year solicitation letter, this is a classic example of a wider problem in the nonprofit community: the “it doesn’t count” syndrome. Oh, members of your Board buy and sell tickets to the benefit event? “It doesn’t count” because there might be something involved in the transaction beyond a straightforward check and tax receipt. “It doesn’t count” syndrome leaves Board members feeling unappreciated and nonprofit executives feeling unsupported; so repeat after the Nonprofiteer: money is fungible; IT ALL COUNTS.

And if the funder disagrees: so the funder is stupid! Having money is no guarantee of having brains, and that’s as true in the philanthropic sector as anywhere else, though it’s harder to remember when we’re spending all our time trying to please people with money.

The Nonprofiteer’s advice: call the program officer and say, “Do I understand you want to know what percentage of the response to our end-of-year solicitation letter—what we call the annual appeal—comes from the Board, or do you just want to know what percentage of our annual contribution income is donated by the Board?” If s/he really means the former, then yes, just shift the timing of your contributions in future years.

“Teach your funders well . . . . just look at them and sigh, and know they” don’t understand you at all.**

——————————–
*Cool Hand Luke
**Crosby, Stills, Nash and Young: “Teach Your Children”

From Law Students to Nonprofit Trustees

November 26, 2012
And now a word from the Nonprofiteer’s favorite guest poster, Lesley Rosenthal of Lincoln Center in New York:

Making the rounds at law schools for Good Counsel: Meeting the Legal Needs of Nonprofits, I’m heartened to meet so many students interested in serving on charities boards in their communities.  My recent talk at Harvard Law School about how law students and young lawyers can start preparing for the trustee role is available here.

Dear Nonprofiteer, How do we reach consensus on our Executive Director’s performance while preserving every Board member’s perspective?

November 20, 2012

Dear Nonprofiteer:

What is the best way for a Board to review its Executive Director?  Our current review process involves each Board member’s completing a review of the ED and then our Board president’s “averaging” the reviews (without further debate or discussion from the Board) into the final document.  While this is an effort at broad input, in reality it results in producing only the most general review, with minority viewpoints often dropped.

As  Board treasurer I work with the staff and Executive Director often in different ways than other Board members and this give me the opportunity to see areas of weakness and strength others may not see.    Likewise I’m sure other Board members, due to their unique positions of involvement, are seeing still different weaknesses and strengths but because their observations may not be those of the majority,  they never make it into the final report.

Signed,  Minority Report

Dear Minority:

You’ve put your finger on an important but oft-neglected aspect of nonprofit management: the need (as in the wider political arena) to protect the rights of the minority while preserving democratic governance by a majority.  Nonprofit Board members are often so averse to conflict that they unintentionally shut down opposition—even their own—to preserve the illusion of unity, or at least consensus.

But it’s not consensus if it doesn’t include acknowledgement of minority opinions, particularly when those opinions are informed by special expertise.   Board members are charged with governing agencies, which largely means overseeing the work of the Executive Director.  Many Board members ask how that’s possible when everything they know about the agency comes from that selfsame Executive Director; and the only good answer is to secure information from within the Board itself.

As Treasurer, you know whether the ED is a spendthrift or a penny-pincher; whether s/he manages cash flow well or whether every month is a festival of white knuckles; whether s/he is carrying the appropriate share (or much more, or much less) of the fundraising burden.  If you don’t share these data with the rest of the Board, all the other members are operating in needless dark.

The Nonprofiteer suggests that you propose to the Board president a relatively minor modification of the current approach:  that after s/he’s crafted what’s designed to be a consensus report on the Board’s behalf, s/he bring it back to the Board for final approval.  At that time, every Board member should get to see the comments of every other Board member, which enhances the likelihood that someone will say, “Wait a minute–we can’t gloss over these comments about how the Executive Director abuses the staff in public.”

The Board president probably wants to make sure that the ED isn’t getting feedback from all directions, because that sort of cacophony is to no one’s benefit.  That’s a fine goal, but it should be balanced with the goal of making the ED’s review as comprehensive and nuanced as possible.  Your agency’s decision to gather all the Board feedback gets you half the distance to the goal line; sharing and incorporating that input as a group will earn you a touchdown.

Dear Nonprofiteer, If I’m not supposed to know about it, how can I complain about it?

October 29, 2012
Dear Nonprofiteer:My wife is the development director for a nonprofit animal welfare organization. I am a dues-paying member of the group, which entitles me to a vote, and to have input at group meetings.

Is it improper for me to express my concern to the board members about policies and practices I have a problem with? My wife has asked me not to, and I understand why.

Last year, I was chairman of the group’s nominations committee. We were charged with recruiting and vetting potential candidates for our board of directors. The application process involved assessing the candidate’s background, skills, network and, not to put too fine a point on it, access to people with deep pockets. This year, the chair of the board made a decision on her own to revise the board member application so that it more closely resembled the application our prospective volunteers fill out. I also have a problem with the fact that all the nomination committee members this year are also board members. I’m not saying that our present board is completely dysfunctional, but even so, I would think that if even if a partially dysfunctional board is picking out its own replacements, that’s like perpetuating the problem.

There are other problems I have with the group, but those two are ones I feel strongly about. The problem is that I wouldn’t know this information except through my wife, because board meetings are not open to the general membership. Even employees aren’t allowed to attend unless they are invited or ask for (and are granted) a spot on the agenda. That’s another thing I have a problem with.

What is my recourse?

Signed, On the Outside Looking In
Dear Outside:
The real question is, what recourse do members have when the Board of Directors is leading the organization in a manner unsatisfactory to its members?  And that in turn is dependent on the group’s bylaws.  From what you’ve reported, the Nonprofiteer gathers that the organization is Board-governed rather than member-governed, meaning that members have very little power.  You say you have “a vote . . . and input at group meetings;” but it seems that votes at group meetings aren’t binding on the Board of Directors, which holds the real power.
But even if the group can overrule the Board of Directors, you’re only one member of the group.  Your “recourse,” such as it is, is to persuade your fellow members that something is rotten on the Board, and secure a group resolution (binding or not) proposing that the Board Nominating Committee include members who are not on the Board and/or that the Board members’ job description be revised to emphasize the need to give and raise funds.
But you say you wouldn’t know about the membership of the Board Nominating Committee, or the revision of the Board members’ job description, except through your wife.  That strikes the Nonprofiteer as bizarre: neither of these things can be considered confidential.  So you’re well within your rights, as a member of the group, to say to other group members, “We don’t even know who’s on the Nominating Committee, or what they’re looking for—how come?” and to petition the Board to release this information.  That way you’re asking a question that any group member would ask—“Who’s being recruited to the Board, to do what, and by whom?”—and not breaching the confidentiality of Board-meeting conversation.
On your general point: most nonprofit Boards are self-renewing, recruiting new members through a committee of old members.  It’s a best practice to have the Nominating Committee chaired by someone who’s leaving the Board rather than someone who’s staying on it, and it’s probably also a good idea to have the Nominating Committee include representation of the organization’s various constituencies (including, in your case, the group); but there’s nothing suspicious or untoward about an all-Board Board Nominating Committee.
In sum: don’t express your opinions to Board members, particularly concerning things you’re not supposed to know.  DO express your opinions to fellow group members, and if you’d like to know who’s on the Board Nominating Committee and what they’re looking for, secure a group resolution to that effect and have it presented to the Board as an inquiry by the collective.
In other words: don’t embarrass your wife.  Her income is at stake.

Dear Nonprofiteer, What’s this “shared sacrifice” I keep hearing about?

July 30, 2012

Dear Nonprofiteer,

My mom works for a small nonprofit that recently went through financial hardship.  The organization did everything in its power to keep afloat, including (unfortunately) firing employees and cutting pay, hours, and health benefits for the people remaining. And it has bounced back, for the most part.

Recently managers have given themselves raises based on their own research about pay scales elsewhere. First, is this a conflict of interest? Does it seem unethical to give yourself a raise based on your own research while other employees are not given one at all?

My mom works in the accounting department and has been there for over 10 years. While the company wasn’t doing well she accepted all the cuts while taking on the work load of the people who were let go. Since then, other employees have been given raises, and now make nearly double what she does. She was even promised a pay increase for obtaining her BA in Accounting but it was never delivered.

She has brought these issues up but nothing has been done for her. She’s a dedicated worker, going out of her way to take on more work and more education for nothing more than the occasional cost-of-living increase.

Does this happen often? Is it common to see managers in non-profits overcompensate themselves even though it was their poor decisions that almost caused the organization to go under? Does it seem wrong that the employees who fought to keep it afloat have not been given the same percentage increase?

Have you come across any literature or articles on the subject?   I feel terrible for my mom because I know her work ethic and her commitment to the good the organization does for the community.  She deserves to be paid more than an entry-level accountant and her employer should have recognized that long ago.

Signed, Daughter in High Dudgeon

Dear Daughter:

You’ve asked two separate questions, really: first, is this ethical behavior?  Second, is it common behavior?  The first question is easier than the second.

Of course it’s not ethical for leaders to provide themselves with raises before restoring their subordinates to their pre-emergency level of compensation.  Employees who are considered essential enough to be retained during times of crisis, albeit at reduced pay and benefits, must be considered essential enough to be rewarded once the crisis is through.

However, many managers (and the Boards of Directors to whom they report) assume that employees are working there for the love of the agency and/or that any monkey could do the job those employees are being underpaid to do.  This is the proverbial Catch-22: we pay you so little, you and your work must be worthless; since you’re worthless, why should we pay you any more?

The only way to respond to this is to document how people who do the same job are paid elsewhere.  Your mother should use her financial skills to find out what BA accountants with similar responsibilities are paid at similar-sized agencies in your city or county.  Then she should take this documentation to the Executive Director with a specific demand for an increase in pay and benefits to at least parity with her professional peers.  It’s always harder for an ED to refuse a raise based on outside comparables, whereas if your mother tries to compare herself with people in her own agency the ED can always checkmate her with, “Well, but Ellen works three extra nights a week,” or, “But Josephine has been here since 15 minutes before you arrived.”

The other advantage of seeking outside comparables is that it will give your mother a sense of the job market.  It’s hard to think of moving elsewhere after years of loyal service, especially while feeling committed to the agency’s mission and clients.  But that’s no reason to be treated like a slave.  (And salaries from other agencies may include ones paid to men.   No one ever believes that women are paid less than men for the same work until they encounter the cold hard facts for themselves.)

Notice that the major fault is the agency’s unwillingness to restore your mother’s salary now that there’s money available again.  The fact that managers documented the market for their services, and then rewarded themselves based on that documentation, is more an apparent conflict of interest than an actual one.  If everyone does his/her job it doesn’t really signify who did the research about comparable compensation: only the Board of Directors can give the Executive Director a raise, and the Board is designed to be independent of the ED.

But perhaps the Board isn’t actually independent, which leads to the question about whether your mother’s situation is a common one. It’s very common in nonprofit organizations for the Board of Directors to be utterly in the Executive Director’s thrall and prepared to do as s/he says without any independent evaluation whatsoever. This is partly because many nonprofits are still run by their founders, to whom every Board member is personally loyal, and partly because Executive Directors manage their agencies full time while Board members govern them only part time.

So if the Executive Director of a small nonprofit wants to skim off a raise for him/herself while withholding money from his/her subordinates, it’s easier for him/her to do so than it would be in a larger nonprofit with a professional human resources department, or in a regular business.  (The Nonprofiteer herself once succeeded an ED who had helped herself to a raise: knowing that the Board Treasurer signed checks without paying attention to the amount, s/he simply took advantage of that fact.)

But however easy, or common because easy, such practices may be, they are unethical.  If your mother can’t get the raise she deserves by offering honest comparables to her boss, she should find a new job and, on the way out the door, send a letter to the Board president and treasurer (or the whole Board) denouncing the ED’s shoddy financial practices.  It won’t get Mom the raise she hungers for but she will get to enjoy the dish best served cold: revenge.


Follow

Get every new post delivered to your Inbox.

Join 103 other followers