As noted in Allison Trimarco’s February post, these are interesting times, replete with significant issues. To borrow some phrasing from Kipling, if you can stay focused on your mission, when all around you there is challenge and change, you will be an effective board member, my friend.
In the face of challenge and change, boards and management must stay focused on mission and the programs and services used to achieve it. This post provides some considerations from a legal perspective, which actually apply in calm as well as turbulent times.
All nonprofits must assess their operations, plan for the future, and review their governance practices to ensure that they are in the best position to meet the challenges and changes that may affect the services they provide or are planning to provide.
Here are some thoughts on governance practices and the housekeeping procedures that can support them.
Corporate governance comprises the principles, policies, and procedures by which a nonprofit accomplishes its mission.
There is no “one size fits all” for governance. It should be established based on the facts and circumstances particular to your nonprofit, which may change over time. While facts and circumstances differ among nonprofits, there are certain principles and “best practices” that should be considered in establishing any nonprofit’s governance.
There should be a periodic review of your mission to see that it appropriately describes what the nonprofit wants to accomplish and what programs and activities it will use to do so. If the nonprofit plans to change or expand its mission in some way, it may have to amend the “purposes” provision in its Certificate of Incorporation and notify the IRS.
There should also be a periodic review of the Certificate of Incorporation and Bylaws. These contain the internal rules by which the nonprofit conducts its activities and provide a framework for its governance and management. The review should ensure that they comply with legal requirements, reflect the nonprofit’s governance and activities, and conform to best practices.
The board should periodically review its governance and management policies to ensure that they reflect the nonprofit’s operations and best practices. These can change over time as the nonprofit evolves.
For example, if a nonprofit is hiring its first executive director, it should consider adopting a compensation policy to cover how the level of compensation will be determined. There are specific questions in the annual return on Form 990 on executive compensation. A good starting point for your policies is adoption of conflicts of interest, whistleblower, and record retention policies. These are also the subject of questions in Part VI of Form 990.
There should be a periodic review of the procedures in place to ensure compliance with all applicable state and federal reporting and other requirements, including state annual reporting and charities registration, annual federal information returns, sales tax exemption, and compliance with state and federal fundraising requirements.
Depending on the nonprofit’s activities, this could also include compliance with lobbying and advocacy restrictions. For information on political and lobbying activities by nonprofits, see our earlier posts here, here, and here.
The board should schedule routine reviews of the nonprofit’s operations. For example, it should review financial policies and procedures, risk management considerations, and insurance coverage.
Finally, to ensure that good governance is ingrained in the nonprofit, the board should structure a system to train and integrate new board members. They may never have been on a board and should be educated about governance and their roles and legal responsibilities. Consider using a board book and a “buddy system” to help orient and train new board members.
A good housekeeping practice is to create a corporate calendar with all of the nonprofit’s state and federal filing requirements. On this calendar, it would also be productive to include scheduled dates for periodic reviews of corporate governance, as suggested above. Keep a hardcopy version in case your e-calendar is damaged by a virus or lost.
Good board meeting practices will help board members meet their fiduciary duties. Agendas and material to be considered at a meeting should be sent in advance. Agenda items that provide the board with essential information on the nonprofit’s operations, such as financial reviews, should be included for each meeting, with appropriate management personnel available to provide and explain the information and respond to questions.
Appropriate meeting minutes should be taken and maintained by the board and board committees. This is the subject of another question on the Form 990.
Compliance with all notice, quorum, and voting requirements is a must. While this may not seem important, it will matter if there is a dispute or disagreement over some issue, a point amply demonstrated by a 2016 decision of the Appellate Division of the New Jersey Superior Court, which upheld the invalidation of certain actions that were not effectuated in accordance with an organization’s bylaws.
Kent E. Hansen is a senior staff attorney with Pro Bono Partnership, Inc. Pro Bono Partnership provides free business and transactional legal services to nonprofits serving the disadvantaged or enhancing the quality of life in neighborhoods in New York, New Jersey, and Connecticut.