Nonprofit Board Crisis

Nonprofit Board Action without Quorum

When it comes to a nonprofit board's taking action (aka voting), numbers often matter.  Most often a board's by-laws instruct how many board members need be present and what portion of that number needs to vote positively on an item.  

I'm working with a team right now to update the organization's by-laws and during this process we came upon two questions: what happens when there is no quorum and equally important, what happens when quorum is lost during or more likely, toward the end of the meeting?  

In my experience, most boards do not take action on items needing action until a quorum is reached.  Often enough, as members leave the meeting, thus actually changing whether there is a quorum, the board just proceeds without noting the departures but applies the same rules the bylaws specify regarding what % of those present voting yes means a decision has been reached (positively and negatively).  

After research from one of our team, it turns out that basically, if practicing using Roberts Rules of Order or as otherwise specified in the bylaws,once quorum has been lost, business decisions (action/voting) can no longer be made in the meeting.

Here's one source that clarifies Roberts Rules:

present at a meeting to transact business.  While there are some exceptions (see below), no motions or votes should occur unless there is a quorum.  As a result, if quorum is lost in a meeting without a statute or rule to the contrary, business stops.

Robert’s Rules Quorum Steps

For organizations that follow RONR due to statute or governing documents (such as some governmental bodies, homeowner and condominium associations, and nonprofits), there are several procedural steps that can be taken even in the absence of a quorum, including:

• Setting a continued meeting through the motion to Fix the Time to Which to Adjourn.
• Ending the meeting through a motion to Adjourn.
• Recessing the meeting, in efforts to obtain a quorum.
• Taking measures to obtain a quorum, such as rounding up members in the hall or contacting members.

If some urgent matter can’t be delayed and must be acted upon, the members proceed at their own risk with the hope that a later meeting with quorum will ratify the action.  There seems to be an urban legend that business at meetings can continue without a quorum so long as no one raises the issue.  Not true!  The general rule is that business transacted in the absence of a quorum is null and void.  In fact, members who vote on motions at meetings without a quorum can at times be held personally liable for their actions.  So don’t do it!

For organizations governed by state statutes (incorporated nonprofits, community associations, governmental bodies), the answer can be more complicated.   For instance, the model acts for nonprofits, condominiums, community associations, and planned communities all provide that if a quorum is present at the beginning of a membership meeting, the quorum remains regardless of how many members leave.  So, you could end up with only a few remaining members at the end of a meeting making decisions for the entire organization.  There are both news accounts and lawsuits of such instances, with the general rule being that if you don’t want a small group of others to make decisions on your behalf, don’t leave the meeting!  The rule is generally the opposite for board meetings, where a quorum must generally be present at all times during the meeting.

How to Raise the Issue of a Lost Quorum

In organizations that require a quorum at all times, what is the process for raising the issue that it has been lost?  Under most parliamentary procedure manuals, the absence of a quorum is brought to the attention of the chair through a Point of Order (“I believe we no longer have a quorum”) or a question to the chair (“Do we still have a quorum?”).  Even if no one raises the issue, the presiding officer has an obligation to make certain that enough members are present for a valid meeting.  At the point where it is realized there is no quorum, business (other than the procedural motions discussed above) stops.  A guest speaker or announcements might be allowed, but no further votes should be taken.  In larger bodies, because no one knows exactly when the quorum was lost, Robert’s Rules of Order provides that prior action is still valid.  However, when it can be shown that a quorum was missing for a prior vote by “clear and convincing proof” (such as the record of a roll call listing everyone present at the meeting at that moment), even past actions can be challenged.  (For more details on the process, check out the “Quorum” chapter ofNotes and Comments on Robert’s Rules, Fourth Edition, or pages 96-98 of The Complete Idiot’s Guide to Parliamentary Procedure Fast-Track.)

 This entry was posted in HOA & Condo Associations, Parliamentary Law and tagged parliamentary procedure, Robert's Rules of Order by Jim Slaughter. Bookmark the permalink.

So, might this change what happens in your board when a quorum is lost?

 

Nonprofit Board Give, Get or Get Off

Give, get or get-off is a traditional expectation imposed by fundraising advisors to basically describe the expectation of board members.

A couple of days ago the Wall Street Journal had a review of some celebrity charity events held in the New York Long Island Hamptons.  Needless to say these star-studded events raise money, big money, and do so because each celebrity makes the commitment to do so for the charity with which they are affiliated.  Good for these charities!  But does celebrity status or wealth justly serve as the only value or contribution to be expected of board members?  

What about the many more nonprofits (the 98%) who don't have board members who have or have access to wealth?  Do these board members have no value?  Is their contribution of wisdom and commitment not enough (another paradigm: wisdom, wealth and work)?  Must board members be givers or "getters" to justify their existence as a nonprofit board member?  

I propose the answer is "no"!  Harder to achieve sustainability, possibly.  Impossible, no.  I''d welcome hearing from both sides now.

Nonprofit Board Beyond Bylaws

Here's an interesting set of thoughts from Dr. Eugene Fram who discusses nonprofit board roles "beyond the by-laws".  I'm interesting in learning your takeaways.  Also, as another thought, I propose that what's not contained in a board's by-laws might be contained in the board's governing policies.  John Carver proposes that such policies be divided into those that are focused on mission (mission, purpose and values and strategic direction); those that are specific to the board; those that are the board's & exec's; and those that are the exec's.  This is an acceptable framing in terms of pretty much convering indeed what is not in the by-laws and the process for deriving these ensures at least during the development stage, some consciousness of roles.  The one exception I would pose to singularly using Carver's construct is his insistence on the limitations as the definers.  I think these policies can be framed in the positive, for the most part.

Anyway, here's Dr. Fram's thoughts.

Beyond the Bylaws: A Clarification of Nonprofit Board Responsibilities

By: Eugene Fram

A nonprofit director’s duties may be much more difficult than those of a for-profit board member. Both types of directors have the same basic duties: fiduciary responsibilities; establishing, with staff input, mission vision and values; setting policies/strategies; over-viewing outcomes/impacts and conducting annual meetings.

I suggest nonprofit directors may not be fully addressing some duties specified in the bylaws and some which are culturally driven. This latter group might be called “latent duties.”

•Fundraising: Nonprofit bylaws can list fundraising as a board duty, but its execution is often left to the CEO and/or a development director. In a recent survey, 76% of 1,341 Nonprofit CEOs gave their boards academic grades of “C,” “D’ or “F’ for their fundraising efforts.* Depending on its status in the bylaws, fundraising can be an overt duty or a latent one. No matter which form it takes, in my opinion, fundraising has to be a partnership between the board and the CEO.

•Legal Requirements: Nonprofit directors have a set of legal requirements not incumbent on for-profit directors.
A nonprofit board is required to participate in development or review the IRS 990 form in detail before it is submitted each year. Nonprofit directors have more specific state regulation to which to adhere. In California for example, “ …a charity may sometimes be required to file a 990 with the Attorney General, even when there is no requirement that a 990 be filed with the IRS.” **

Additionally, I personally find it difficult to understand how so few nonprofit directors and managers are aware of IRS Intermediate Sanctions Act, related to excess benefits transactions. (Section 4958 – IRS Code). If directors or managers provide an excess benefit to themselves, an employee or even a volunteer, they can incur serious personal tax penalties!! Excess benefits might include providing above market salaries, selling something to a volunteer below market value.

•Board-Staff Relationships: As I have noted in other posts, most nonprofit organizations are relatively “flat organizations” and structurally the staff may only be one of two levels below the board. As a result, nonprofit staffs becomes well attuned to the actions of the board and the frequent rotations of board personnel. They know that these changes can have significant impacts on their work. In addition, unlike for-profit directors, they are well aware that board members rotate frequently, leaving the staff vulnerable to new influential directors wanting to make rapid emotionally charged changes.

As an example of what can happen, a friend reported that two new board members succeeded in initiating a board mandated bureaucratic Management by Objectives Program into a nonprofit’s operations. This resulted in staff spending hours completing and reviewing MBO forms, resulting in a disgruntled staff and a reduction in productivity.

To meet the requirements of this latent responsibility, boards need to seek greater contact with staffs at staff celebrations of success, on board-staff committees and at other appropriate occasions. This is a trust building requirement. Board members need to be aware, however, that these contacts can open the door to some staff making “end-runs” around management when a staff member is dissatisfied with a management decision. This problem can simply come with the territory in fulfilling this latent board duty. As a contingency, boards need to have a policy in a place for addressing the issue.

•Who Does The Board Represent? Nonprofit boards legally represent a community, professional or trade association. This allows them to function with tax-free status and acquire other benefits. Some directors can mistakenly assume their jobs are to represent the interests of the staff, not the groups that established the organization. In this instance, they misperceive a responsibility that does not exist.

Example: The field of “talk therapy” has been economically disrupted by the increased use of treatment via medications. The board of a nonprofit counseling organization attempted to keep the organization viable as client levels significantly declined because the board felt that the staff and board were part of a “family,” as one director described the board culture. The board finally closed the agency and transferred remaining staff and clients to a more economically viable agency.

I suggest nonprofit boards periodically need to review duties specified by the bylaws as well as current law to make certain they are in compliance. Gaps can arise because the bylaw duties are ignored or delegated. In addition boards need to be alert to latent duties, not readily overt, such as generating appropriate staff relationships.

* “Nonprofit Governance Index 2012, Data Report #1: CEO Survey of BoardSource Members.” BoardSource, Washington D.C.
**Kamla D. Harris (2008) “The New 990 and It’s Relationship to California Law,” Office of the Attorney General, State of California, Department of Justice.

 

Nonprofit Boards Fiduciary Duty of Obedience

A nonprofit board's duty of obedience is two-pronged.  One part of this duty focues on a member's behavior.  Essentially, what goes-on at a board meeting binds the board member to requiring that members cannot go outside the board and rally against what has been agreed-to.  A disgruntled member can: choose to accept a decision and live with it; try to get the board to change its mind over the next period of time; or, resign (and then work against the board if so moved).

There's another dimension of the duty of obedience.  This second dimension is focused on a board's commitment to mission having evolved from nonprofit's following the founder's intentions.  But, because the world may and does change in time, this duty must include understanding mission within the context of  market.  Market forces that is and includes, as a principle variable, the changing needs and demographics of consumers.  

Settlement houses represent best this point.  Settlement houses often start with the intent of "settling" specific ethnic-immigrants into a community.  But as most communities recognize, it is common for "who" is coming "in" to change.  So, while for instance, Irish might have been a dominant immigrant in a community in the late 1800s and early 1900s, Bosnian or Serbian or Puerto Rican immigrants might be the next new comer.  Settlement houses, in order to be responsive, needed first to recognize the change and next, adjust programming, and at very minimum, add staff who spoke the language, if they were to continue.

Two articles in the Wall Street Journal should serve as notice to nonprofit boards that faithfulness to mission includes sensitivity to market.  One article is about Purdye University's commitment to make its services more affordable in a time when tuition has risen every year.  The University is trying a variety of tactics to make change and, according to the article, succeeding, while adhering to its mission of ensuring its students make progress and achieve their goals.  A second article, focuses on the successes of the Newport Jazz Festival in reaching its 60th anniversary while turning to the future of the music and the public.

Mission matters as much as market if a nonprofit plans to continue as a thriving organization.  What mission must include, changes in market, and, organizational adaptation: this is good strategic conversation for a board.

Nonprofit Board Meeting Effectiveness

Which of the following tool (s) has the best prospect of making your board meeting THE EVENT of the month or quarter or whatever:

*consent agenda
*planning and choreography (including food)

*actionable agenda items

board-driven conversations

*nonve of the above

*all of the above

 

I believe if you checked "all of the above" you would be correct.  Each of these activities can contribute to making happier and productive board meetings.  Without these activities: less happier and productive meetings.  Really!  Try them out and let me know what if any works for you.

Nonprofit Girth

There's little question that size matters in the ability of a nonprofit to achieve scale.  Really tiny, no-income organizations have lots of challenges in managing and meeting their basic administrative and fundraising needs.  For example, there's some evidence that an organization with less than 10 staff often has just enough resources to provide a modicum of services but not enough resources to manage and fundraise to grow to a level where it has staffing to fully support these activitives.  And of course, the dimensions and challenges change with size.  But how much income really is enough?

The Nonprofit Times recently published "America's Top 50 Charities" (2012). For sure, big is really "big"?  For instance, the Y claims the number 1 spot with $6 billion in annual income and CEO pay of $440K.  Good360 (I don't know these folks) took the 50th spot with only $298 million in annual income.   

So how big does a nonprofit need to be to "make a difference"?  Is the Y making a "big" difference? And in what way are the other top 50 making a difference?  Have they achieved "scale".  And shouldn't "we" see the impact of this scale?

Yes, way many more questions than answers.  So what do you think?  Can a nonprofit only have a scalable impact with realy huge buckets of money?  

Nonprofit Governance Matters

The following story had me asking, "what exactly was the board of this organization up-to" during the period described in the Phillie.com article?  Judge for yourself but my thought is that this exec had the board totally under his control and that just isn't the way to do business as external parties came to judge and effectively forced the board to action. 

Here's the story:

CHRIS HEPP, INQUIRER STAFF WRITER

LAST UPDATED: Wednesday, July 23, 2014, 1:08 AM
POSTED: Tuesday, July 22, 2014, 6:53 PM

 

Ogontz Avenue Revitalization Corp. (OARC), the controversial community development firm with ties to State Rep. Dwight Evans, has replaced its longtime chief executive officer, Jack Kitchen.

In an announcement that made no mention of Kitchen, who led the organization for 14 years, OARC named Kimberly A. Lloyd, chair of the Lincoln University board of trustees, interim president and CEO. The announcement, made Monday, said the change was effective June 30.

It could not be determined Tuesday what led to the change at the organization, which has been buffeted by a state inquiry into its operations and the loss of millions of dollars in taxpayer subsidies - in part as a result of Evans' loss four years ago of his position as chairman of the Appropriations Committee.

Neither Lloyd nor Kitchen returned calls seeking comment. Nor did Tara Johnson-Hill, spokesperson for OARC, or Evans, who founded OARC and has worked closely with Kitchen over the years.

Evans (D., Phila.), speaking Monday to WHYY NewsWorks, said Kitchen had "decided to move on." NewsWorks reported that Evans "did not know Kitchen's destination, or details of the decision leading to it."

Kitchen's LinkedIn profile lists his current job as president of Shay Real Estate & Consulting, a company with "expertise in economic development."

Until his departure, Kitchen was OARC's public face and leader during its dramatic rise and sudden fall as one of the city's fastest-growing and best-funded community development nonprofits.

With Evans' support in Harrisburg, OARC secured more than $40 million in public funds between 2006 and 2010. The money was meant for projects to benefit the West Oak Lane neighborhoods that make up Evans' legislative district.

OARC's image suffered, however, when questions arose about some of its projects, including the purchase of a financially troubled Mount Airy nightclub owned by friends of Evans', and the spending of $1 million in taxpayer funds on the West Oak Lane Jazz festival while other city celebrations faced cutbacks.

The state's aid to OARC drew the ire of other Democrats, who voted to demote Evans as the party's leading member of the Appropriations Committee in 2010 after Republicans won control of the House. Thereafter, OARC's taxpayer funding fell from $11.4 million in 2010 to $2 million in 2011.

Gov. Corbett's inspector general, too, scrutinized the spending and concluded that OARC, under Kitchen, had misspent or mismanaged portions of state grants worth $12 million since 2006, violated bid rules, and spent taxpayer money on questionable real estate purchases.

The administration responded by freezing OARC's funding and barring it from seeking grants. OARC countersued, but eventually agreed to return $1.2 million in grants and forgo an additional $1.8 million tentatively approved before Corbett took office in 2011. The settlement restored the nonprofit as a "grantee in good standing" while assigning no wrongdoing to either side.

Read more at http://www.philly.com/philly/news/20140723_Controversial_West_Oak_Lane_nonprofit_replaces_chief.html#45dbCB4h5FTm2ZGu.99 

Nonprofit That Wasn't?

Kenyatta Johnson appears to have a problem.  He has been running an anti-gun violence program in Philadelphia.  This of course is a good thing.  However, he has been running his "organization" without the structure and a tax status that is supposed to provide the public and donors with assurances and some level of confidence that all that he is doing is legitimate.  This does not mean that Mr. Johnson hasn't actually been doing what he has said he was committed to doing but the absence of a board and clear records and even the tax exemption status leaves open the question: is he indeed doing what he says he is doing.  And, tie this in with a political environment and Mr. Johnson must now face challenges from the media and politicians and the public.  

The nonprofit status and structure adds a layer of accountability not otherwise present in other structures. 

Lessons to be learned.

For the story visit Philly.com. 

 

Nonprofit Board Finance Policy

Nonprofit boards, not necessarily all the members, LOVE finances.  I find, and for many good and valid reasons, that nonprofit boards most often consider their chief fiduciary duty (the duty of care) to be singularly focused on the finances of the organization.

For many modest sized organizations (those with less than $500,000 annual budget) I would certainly agree that an eye towards how much is being spent and raised matters alot.  The mis-spending of even $1000 can sometimes make a serious difference in how well an organization is able to work toward mission in any one given period of time.  And yes, finances for all the other sized nonprofits matters as well but certainly in varying degrees at varying times.

So, while acknowledging that finances definitely matter and are certainly central to what a nonprofit board needs to pay attention to to fulfill its fiduciary duty of care, there are many other matters of equal importance that may get lost in the mix when the sole attention is given to finances.  So, here's some thoughts about how to make space so that attention to program outcomes in particular can take at least central place in a board's dashboard.

I want to propose first that a board can simplify the demands of its attention to finances through good policy (to guide/inform staff of its needs and wants).  Insisting that staff finances are management and reported according to those principles set out for nonprofits by the Financial Accounting Standards Board (FASB) certainly reduces a lot of stress on a board trying to figure out all the details themselves. An annual audit overseen by an audit task force (not the finance committee) can provide objectivity during the process and increase the number of board members who better understand the finances.

An investment task force, can provide guidelines for current reserves or the day when such reserves exist.  And a clear policy that states the nonprofit will be in compliance with all legal reporting obligations simplifies the need for a lot of ongoing discussion and makes clear the expectations.

For the board's direct attention, I believe a good policy and practice is Quarterly financial reports which I believe provide a better handle, both current and comparative on the financial life of a nonprofit. 

And, should problems arise, the Treasurer can certainly track these and call on the board for discussion.

Finally, a simple dashboard that notes what money comes in and the key places where money goes out should more than appropriately ensure the board is on-top of what it needs to know.

With all this in place, the board should then have time to discuss the program side of its fiduciary duty of care as well as dive further into strategic and generative areas of focus.

 

Nonprofit Governance Matters at S.F. Community Colleges

How might you think the following arrangement works:

Each of California’s 112 community colleges is governed by a locally elected board. ....the boards (are required) to share day-to-day decision-making power formally with faculty unions.

Shared governance?  Well, maybe not the only factor contributing to the challenges that California's community colleges but according to the New York Times, the result from this arrangement has been:

chaos and dysfunction in many places. With no state leadership, and with boards and faculty unable to resolve their many differences, institutions like City College have achieved terrible results for students. According to the Department of Education, almost 70 percent of City College students fail to graduate on time, and only 14 percent transfer elsewhere. The widely used Community College Survey of Student Engagement found that City College’s academic practices are below par on every available measure, including levels of student-faculty interaction and teaching methods that foster active and collaborative learning. The faculty-dominated college, the accrediting commission noted, had hired many more tenured professors than it could afford to pay.

So I understand that the system may have its flaws but to blame the dysfunction totally on a requirement that faculty and the board must work together to plot the daily life of the college -- well this blame certainly explains the current and past seven years of the US government I suppose.  But at least in the college, the board and faculty have similar goals: neither wants to see failure, both want to see success, for their institution, for their students and for themselves.  Like those with a fear of flying, there should be understanding that the pilots have no more a desire to die than the passengers. So too, I assume the same for a college's faculty.  

To argue that the college's failures are founded in the linkage to a shared governance arrangement says that the author fails to understand what must be really going on internally -- the competing demands; the lack of resources; perhaps management which doesn't facilitate the parties effectively; poor planning -- the list goes on.  But shared governance is a fundamental principle that is even supposed to guide the democratic system of the US.  Of course one might question: And, how's that working?  The answer: better than the alternative?