Nonprofit Board Crisis

Nonprofits & Gaming - Revenue Generation #NonprofitBoards

Well, it looks like we are revisiting the adage "the only thing wrong with tainted money is there taint enough of it".  The subject of gaming, particularly with slot machines, is the subject of the following opinion piece in the Jamestown Sun, a North Dakota media.  North Dakota has authorized nonprofits to install slot machines (they have the name of pull-tab machines) as a revenue generator for nonprofits.  The opinion piece speaks to the what-if's going forward but does not actually question a nonprofit's values which one might suspect might also be challenged in this transaction.

Now there's no question that citizens like slot machines - gaming - as it has benefits that are multitudinous and include of course the possibility of earning or losing extra cash.  Gaming of course can produce big wins for the vendor and in this case nonprofits.  But is it "ok"?  This is of course the question for nonprofit boards.  And why shouldn't it be ok - particularly if this is THE way to generate otherwise limited available cash?

Well the debates will go on far into the future.  Meanwhile, here's the opinion piece.

 

OPINION | COLUMNS

| 

Opinion

 

 

Port: If nonprofits can buy bars to promote gambling, are full-on casinos far behind?

"I think the Legislature needs to consider different laws so it doesn't get out of control," says the longest-tenured member of the State Gaming Commission, of the growth in electronic pull-tabs.

 

Opinion by Rob Port

January 09, 2023 10:01 AM

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MINOT, N.D. — "It's not something we're looking forward to."

That's what Mikayla Jablonski Jahner, the executive director of Bismarck Hockey Boosters, told me about her nonprofit group purchasing a bar. She spoke to me in the context of my article about the charitable gaming boom in North Dakota driven by the enormous popularity of electronic pull-tab machines.

Gross proceeds from charitable gaming have grown more than 560% in 2018, the last year before the e-tab machines were legalized, turning charitable gaming into a $1.7 billion industry. This has touched off a turf war among gaming interests now competing for lucrative places to put blackjack tables and pig wheels, and, most importantly, the highly lucrative e-tab machines.

This brings us back to the Bismarck Hockey Boosters and their decision to buy a bar. They told me they're doing it to protect their gaming locations. "We need to protect our revenue," Rick Geloff, a board member for the group and its treasurer, told me.

The e-tabs explosion — remember that 560% growth figure I just cited took place during the pandemic years which shut down many hospitality businesses — has created some enormous incentives for charities and businesses to place machines in as many places as they can.

It may also be the impetus for vertical integration between for-profit and nonprofit organizations.

'I don't see any difference'

Consider this scenario: A for-profit business hospitality business starts its own foundation and then hosts gaming at its own locations under the auspices of that foundation. It's possible, under current law.

All it would take is some time, money, and paperwork.

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"To qualify for a gaming license, an 'eligible organization' must be a veterans, charitable, educational, religious, fraternal, civic and service, public safety, or public-spirited organization domiciled in North Dakota, recognized by the secretary of state as a non-profit, and which has been regularly and actively fulfilling its primary purpose within this state during the two immediately preceding years," Deb McDaniel, the director of gaming for the North Dakota Attorney General's Office, told me.

Simply put, a private business interest would have to operate a charity in a very real way for two years before it could get a gaming license. But once they cleared those hurdles? They could control both the non-profit gaming and for-profit business.

"There are other laws and rules that they would need to follow to ensure minimum internal controls to keep for-profit business separate from non-profit conduct," McDaniel told me, "but that is what is being done now basically with these charities that own bars. I don’t see any difference."

Now consider this scenario: A for-profit business decides to build a casino. They start a non-profit foundation to get the gaming license and then build a hotel, restaurant, lounge, and maybe even an event center around the gambling.

The only thing standing in the way of this are administrative rules promulgated by the State Gaming Commission , a low-profile board of gubernatorial appointees who are paid $75 per day and meet just four times a year. They've created rules limiting the amount of gaming that can take place at any one location — no more than 10 e-tab machines are allowed per liquor license, for instance — but there is a huge amount of pressure on the board to lift those limits.

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"The device limits are restricting [that] right now but could change," McDaniel told me. "There are a few bingo halls that could be immediate 'casinos' should more machines be allowed."

Consider the politics of that pressure. It's not coming from gaming industry lobbyists and executives. The frontline of this nascent industry in our state are charities. One truck stop owner, who operates a lounge in his business with ten e-tab devices on the premises, told me the machines are kicking off in the ballpark of $100,000 in donations per year to first-responder groups in his area.

That sort of thing is going on all over the state. Charitable groups, from those that work with the disabled or disadvantaged to those supporting volunteer fire departments and youth sports, are becoming addicted to this revenue. Curtailing this trend would be like putting toothpaste back in the tube.

They want more gaming, not less, and they wield an enormous amount of political clout.

That all of this could happen without North Dakota citizens, or their elected representatives, having a debate about explicitly legalizing full-on gambling in our state is problematic. It seems that's what's on the horizon, but it's coming in through the back door.

'It blows my mind'

Blake Krabseth is the longest-tenured member of the State Board of Gaming, having been appointed to that body by three consecutive governors.

"I don't think anyone thought nonprofits would get so big they could set up a separate legal entity to own a bar and their gaming locations," he told me, adding that he was one of the commissioners who voted to allow e-tab machines. "What we didn't realize when we did it what it would become."

He said was surprised recently when he went to lunch at a local Applebee's restaurant to see three machines in the restaurant in use over lunch time. "It blows my mind."

Krabseth said the machines have some advantages over the old jar of pull tabs sitting at the end of the bar. He said it's harder to cheat the machines, and they're easier to audit. But their popularity has created its own headaches, in his mind.

 

"What we run through those machines now has everyone foaming at the mouth," he said, a situation I described in my previous column . "It raises so much money."

"I don't like it," he added. "I think the Legislature needs to consider different laws so it doesn't get out of control. As long as I'm on the commission, I will not vote to change the rules to let it get out of control."

He described the potential for nonprofits and for-profit hospitality businesses to vertically integrate as "not outlandish." Asked if he felt the gaming commission was equipped, in the status quo, to oversee what may soon become a multi-billion dollar industry, he wasn't so sure.

"Those boards, when you get appointed by the governor, the governor doesn't check. I think governors have to be a lot more careful about who they put on these commissions to make them work," Krabseth said.

"I have a unique experience on that board," he continued, referring to past work on charitable gaming for organizations like Sertoma and the North Dakota State Fair Association. "I've been involved with charities that benefited from it. I think some of these people just say, 'I want to be on a board'. There should be some more qualifications on that board because of the way it's growing."

He also described the budget for the gaming division of the Attorney General's Office — which currently has just two in-the-field inspectors to cover well over 4,000 machines spread across 1,000 locations — as "inadequate."

"The Legislature has to consider how much they want to let it grow. They're naive if they think they can stop gambling. These charities have gotten spoiled. They don't know how to raise money the hard way," he said. "You're right. You can't put the toothpaste back in the tube."

 

 

Nonprofit Boards & Strategy #Nonprofitboards

The following article on where was Southwest Airline's board over recent periods is pertinent I believe to nonprofit boards.  While the focus of the article is technology the background is board strategy and which prize the board kept its eye on.  This is a similar strategy problem for boards in terms of technology spending yes (but obviously perhaps not as critical as for Southwest) but equally so in terms of direction and approaches to reaching that direction - SHORT and LONG term.  One other theme was highlighted in this article and that was board diversity.  While Southwest's board was comprised of "types" not inconsistent in the industry, the lack of diversity, particularly in terms of technology, did not support the long range thinking and strategy needed to avert the recent Southwest experience.  

Lessons for all, for-profit and nonprofit.

Southwest Airlines’ holiday week from hell may cost the company up to $700 million. Here’s what boards can learn from the fiasco January 6, 2023 Last week, Southwest Airlines gave hundreds of thousands of customers a holiday experience they won’t soon forget. Starting Dec. 22, the company canceled more than 15,000 flights as it tried to recover from a winter storm, leaving thousands of people stranded. In all, some estimate that 1 million customers may have been affected. The airline blamed its outdated crew scheduling software for the chaos, reporting that the digital infrastructure became overwhelmed by the volume of changes it had to process, which forced staff to painstakingly find and reassign crews manually. This debacle raises an obvious question: How did the Southwest board overlook such a technological time bomb that may eventually cost the company $300 to $700 million? One possibility is that Southwest directors and executives have been focused on the wrong metric—its short-term stock price—over the past few years. As Zeynep Tufekci writes for the New York Times, it’s not uncommon for CEOs to practice willful denial when pressed to upgrade old software. Instead, they may look for cheap fixes, kicking the cost of a tech revamp down the road so the company doesn’t take a short-term financial hit, which could dent the stock price and CEO pay.  Gianvito Lanzolla, a professor of business strategy at Bayes Business School in London, tells Fortune that boards are sometimes complicit in this digital shortcoming, often by being too controlling or simply unaware of a company’s tech deficiencies. His recent research offers takeaways for corporate boards that want to avoid Southwest’s fate. In a study published last year, Lanzolla and two other researchers examined the board’s impact on digital transformation by analyzing S&P 500 data and the language used in shareholder letters. They found that investors value companies most when a CEO plans to invest in digital technology that exceeds that of competitors. Secondly, investors know that CEOs need board support for such expenditures, even if the payoff won’t materialize soon. As a result, investors also assess whether the board is thinking strategically. Companies in the study were rewarded with higher valuations when their boards allowed and supported experimentation with new technologies. In other words, boards that are too focused on monitoring a company’s cash flow are not always positively perceived. Lanzolla notes that the most effective boards have a diversity of knowledge and independent directors with digital expertise that complement and support the CEO’s vision. Investors typically see such boards as less likely to fall victim to groupthink and more likely to enable meaningful tech adoption. Southwest’s corporate board falls short of the knowledge diversity measure. As Michael Hiltzik of the LA Times writes, concerning their occupational background and perspectives, “The board is as homogeneous as they come.” It includes CEO Bob Jordan, chairman and former CEO Greg Kelly, a former chief legal officer for the airline, and two ex-CEOs of other companies. No board members are obvious tech leaders, Shivaram Rajgopal of Columbia Business School writes in Forbes. He and other academics suggest that boards need a new type of committee dedicated solely to technology and innovation and staffed by directors with the right expertise to guard against a Southwest-style failure. To be sure, it’s possible that Southwest got its priorities wrong. The airline told Fortune in a statement that it has an annual capital spending plan that includes funds for tech investments. In recent years, the company has upgraded its reservations, ground operations, and maintenance technology. “The tools we use to recover from disruptions serve us well outside of extreme circumstances,” a spokesperson said. “But Southwest will remain vigilant to continue already existing plans to strengthen processes and systems.” That brings us to another truism about technology that Lanzolla says many boards do not take to heart. “Digital transformation is not a destination.” Rather it’s “a set of choices within a set of possibilities enabled by technology.” Finding solutions, Lanzolla adds, is a journey. The board’s job is to ensure that trip is not interrupted. Lila MacLellan [email protected] @lilamaclellan

School Boards Not So Different than Nonprofits #NonprofitBoards

As there is a lot of coverage about the politicisation and polarization going on in the world of school boards it was noteworthy to me that Governing Magazine carried an add by Diligent (the board portal people) describing what school boards do.  The plain facts: school boards are simply (in my words) the surrogate caretakers of the school board mission on behalf of the public. 

Given the current behaviors of many school boards one may easily forget that it is in the public interest that those who serve must act.  Sure, just like with any board there is some divergence of opinion about what it is that is the public's needs and how best to serve this but bottom line, good representation is one driven by understanding and responding to the common good.  In my opinion, banning books and denying facts by labeling them as offensive does not advance the well-being of the common good.

That said, here's the Diligent offer on the nature of school boards which by the way is pretty much consistent with what all nonprofit boards do.

School Board Trustees: What Do They Do for a Public School District?

Every public school district is governed by a board of trustees, commonly known as the school board. These school board trustees are representative of their community, putting the interests of students’ futures first.

November 30, 2022 • 

Diligent

 

WHAT IS A SCHOOL BOARD TRUSTEE?

School board trustee definition: According to Lexico, a school board trustee is “a member of a board of people elected or appointed to promote the interests of a school.”

The board of trustees is a group of citizens from the local community, elected to make decisions about the local public school system based on the community's expectations, goals and needs. The public chooses school boards of trustees to consider the needs of students and convert them into a vision, policies and goals that will support student achievement.

SCHOOL BOARD TRUSTEE JOB DESCRIPTION

No single school board trustee job description exists, but different school boards and teacher associations offer their individual takes on the role. One of the most comprehensive comes from the Alberta Teachers' Association, which, among other roles, cites school trustees as advocates, politicians, evaluators, legislators, lobbyists and communicators.

WHAT DOES A SCHOOL BOARD TRUSTEE DO?

Boards of school trustees fulfill their role through a set of responsibilities. These responsibilities are fundamental to the function of the local school district and can only be accomplished by elected governing officials.

SCHOOL BOARD TRUSTEE DUTIES

Although there is no sole definition of a school board trustee’s duties, several board associations have defined the role, with a degree of overlap between their views.

The California School Boards Association sets out five core school board trustee duties:

• Setting direction
• Establishing an effective and efficient structure
• Providing support
• Ensuring accountability
• Providing community leadership as advocates for children, the school district and public schools

The Texas Association of School Boards provides a similar, although not identical, list of duties:

• Ensure the creation of a vision and goals for the district and evaluate district success
• Adopt policies that inform district actions
• Hire a superintendent to serve as the chief executive officer of the district and evaluate the superintendent’s success
• Approve an annual budget consistent with the district vision
• Communicate the district’s vision and success to the community

The National School Boards Association (NSBA) lists the key responsibilities of a school board trustee as:

• Employing the superintendent
• Developing and adopting policies, curriculum and the budget
• Overseeing facilities issues
• Adopting collective bargaining agreements

From just these three examples, we can see that school board trustee duties coalesce around some key areas:

• Direction, strategy and goals
• Accountability and responsibility, especially for the superintendent’s appointment and efficacy
• Support and guidance for district action
• Providing a link between the community and the school via communication, advocacy and transparency

SCHOOL BOARD TRUSTEE SALARY

An August 2022 article published by the National School Boards Association asserts that school board trustees “are being asked to do more than ever before.”

What reward does the average school board trustee receive for this work? NSBA reports that school trustees are “typically volunteers who receive no annual compensation.”

THE SCHOOL BOARD TRUSTEE ELECTION PROCESS

School board trustees are elected to their roles. This might be via a majority vote (where a candidate must receive more than 50 percent of the vote) or a plurality vote (where a candidate who polls more votes than any other is elected). Local policy will dictate the type of election.

BEST PRACTICES FOR THE SCHOOL BOARD TRUSTEE

1) Set the Direction for the District Through a Clear Vision and Goals

A successful and efficient school board trustee knows that establishing and implementing strategic plans is necessary to achieve effective governance. The board of trustees for a public school district should form a vision that is reflective of the needs and desires of the local community. Then, they should work to set and accomplish goals that directly support that vision.

Diligent Community, a cloud-based board meeting management system, allows school boards to publish a vision and mission statement for the public through the board’s site. It enables any school board to communicate board resolutions, initiatives and progress made toward goals.

As a result, Diligent Community facilitates stakeholder and community engagement, saves time for school board trustees, enhances security and provides a reliable way of connecting school board trustees with the communities they serve.

2) Stay Informed Regarding Policies and Governance

Adopting policies and a robust governance model supports the board of trustees in effectively and efficiently carrying out their responsibilities.

School boards of trustees must be aware of the various federal, state and provincial laws, regulations and local policies that can impact the work of the local district. These laws and policies govern the work of the school board. School boards must stay abreast of these policies and regulations and how they may impact the school board’s actions.

The right software will provide the school board trustee with the tools and security to keep board members informed of policies and aligned with governance practices.

Leveraging Diligent Community, boards of trustees can save documents and other materials related to policies, laws and regulations with the "Library" feature. These materials are all searchable by keyword, which can be extremely helpful for a new member of the board of trustees or the public. Training materials can also be housed and shared with the board of trustee members within Diligent Community.

3) Hire and Evaluate the Superintendent

Boards of trustees can face a lot of pressure and responsibility in hiring a superintendent for the public school district. The superintendent effectively serves as the chief executive officer of the local district, carrying out the day-to-day work to accomplish goals and fulfill the vision for the district and the broader community.

Boards of trustees should seek out software that can support them as they search for a superintendent, work collaboratively with them and carry out evaluations. Diligent Community allows the board of trustees to share documents and links related to superintendent searches. These items can be linked to meeting agendas or be made available to the public.

Documents and other related materials involved in the evaluation of a superintendent should be stored in one centralized platform that provides both security and transparency for the public. Superintendents can utilize the goal-tracking feature of Diligent Community to build goals that they can connect to tasks for evaluations. The superintendent can also manage the privacy setting of these goals and use these tools to highlight accomplishments in the evaluation or review the goals with their cabinet.

4) Approve an Annual Budget Aligned With the Vision of the Local School District

Ensuring that the expenses of the public school district are aligned with the goals and vision set by the school board trustees is one of the board's greatest responsibilities. It ensures that the board of trustees is putting their money where their mouth is when it comes to achieving goals and working toward the district's vision.

Utilizing Diligent Community, the board of trustees can share and store documents and materials related to the budget and expenses. Contracts, proposals and other pertinent information can all be stored and easily accessed through the portal.

5) Serve as Leaders of the Community and as Advocates for Students, the School District and Public Schools

Boards of school trustees can be direct reflections of their community and serve to meet the needs and goals of the local school district. Members of the community are considered to be key stakeholders, and stakeholders have a right to know what the yield is on their investment.

Establishing a vision and achieving goals to work toward that vision is essential, but so is cultivating trust and transparency by keeping the public informed. Treating the public with respect and maintaining transparency through sharing relevant information can foster trust between the school board trustees and the local community.

Diligent Community supports this level of engagement and support of the public through features that make it easy for boards of trustees to share information. Paperless meeting agendas, articles, meeting details, previous meeting minutes and other vital information can all be made public on the school board’s site for the community to access.

KEY TAKEAWAYS

Boards of trustees of local school districts face difficult decisions and are at the front lines of public criticism. However, serving on the board of trustees can bring great satisfaction and achievement when driving and sharing in the district's successes. As representatives and advocates for their community, board trustees prioritize the interest of their students and the public school system. Through foundational responsibilities tied to governance, policies, budgeting and more, the board of trustees can establish a culture of support and success within the community.

 

Nonprofit Liquidity #NonprofitBoards

Financial Balance sheets are not often, in my experience a big focus of nonprofit boards.  Generally the conversation goes like this.  Assets are equal to liabilities (what is owed) and equity (what is owned).  Most boards view that when the assets number is equal to the other two numbers all is good.  In reality, not so much.  If liabilities for instance are significantly larger than equity and can't be paid-off within a 60-90 period if needed, then there could well be a problem should no grants come in or contracts aren't renewed or there's a recession and assets must be used-up.  This is a conversation for the boards of course informed by staff.  Not thinking about this?  Ah, but a board really should.

Dr. Fram has offered the following insights about the subject of liquidity - that is when you don't have enough assets to pay off liabilities nor enough income to offset what assets might do.  Messy situation but not all that unlikely.  Take a look please.

WHAT NONPROFITS CAN DO TO MAINTAIN LIQUIDITY

What Nonprofits Can Do To Maintain Liquidity

By: Eugene Fram    Free Digital Image

It doesn’t take a pandemic to make a nonprofit question its capacity to survive. Events such as a loss of major funding, a damaged reputation, huge unpredicted expenses could swiftly reduce the lifeblood of the organization, plunging the nonprofit into deep concern for its long-term survival.

Any nonprofit CEO has the data to predict how long the organization can stay afloat without income. This, however, would be only one rough measure of the nonprofit’s liquidity. Board members need to take the discussion further. They need to realistically appraise total liquidly from fixed/variable expenses and income venues as they relate to mission accomplishment.

Some nonprofits may have a liquidity picture that can carry them forward for years. A second group will be able to maintain steady results because of forward planning efforts and possibly short-term bank loans. A third group will be seriously impaired and will need to review all income streams and costs. Survivals plans may require engaging a merger partner. Their current fixed costs alone may only allow them to operate for a month or two months without income.

I estimate that thousands of nonprofits will be in the third grouping. Cost cutting will likely be a Board’s first reaction.   But an organization can’t exist on a diet of cost cutting.

Following are some actions a board may take to maintain liquidity and avoid the continual squeeze of cost cutting.

A board may require two or three members to become highly active in fundraising. If the current board roster does not have board members who fit this description, the nominations committee might recruit “alumni” board members who have known abilities and contacts. Sometimes one board member can provide significant leadership to maintain liquidity. For example, one human services board member showed the organization how to profitably have an annual dinner honoring a local leader.   In addition, the initial recipient gave the nonprofit an endowment to help support the dinner each following year.

Review all funding venues critically. Be certain as possible that multi-year pledges are going to be fulfilled. Every group from major donors to grass root funding may be different during and after the turbulent time.  Where possible and appropriate, visit with major and potential donors at least once a year. While not all major donors want these visits, this should be reaffirmed occasionally. I have observed additional support arising from these types of contacts. Invite an appropriate board member to accompany the CEO to make the personal call. She/h can add an “outsider” validation to the nonprofit’s impact.

Review all programs for client need . Focus some funding efforts on programs that have rising demands, but for which the ability to garner donations may be receding at the same time. Avoid program “mission creep” during these turbulent periods. Only experiment with or add new programs that are clearly aligned with the mission. For example, a small nonprofit dedicated to assisting the homeless now offers services to a growing number of motor home dwellers living on local streets. The local discussions about the needs of this new client cohort have driven additional fund raising support for the nonprofit.

As a fundraising effort to enhance reserves, consider selling some assets. They can involve buildings, land, art works or other items that are owned by the nonprofit and that have significant market value. After rigorous reviews, some nonprofit art galleries have sold some of their collections to maintain liquidity.   A nonprofit athletic facility, facing Covid 19 shutdown costs and increased competition from a nearby new nonprofit facility, sold some of its land holding as one action to maintain liquidity.

Review the nonprofit’s ability to acquire bridge or long-term loans from the bank that currently offers it a “line of credit.” If a nonprofit does not have one, it should talk with a reputable bank about establishing one.

The current extending pandemic period period appears to be a good time to consider merging with another nonprofit to stabilize liquidity. “Mergers in the nonprofit sector tend to lag behind the private sector in an economic downturn. Unlike the private sector, there is a lack of matchmakers in the ecosystem; therefore, the onus is on organizational leaders to include a potential merger as an option.” * I have been involved with the merger of two national membership organizations with identical mission visions and values. Although, there were “bumps in the road” until the merged organization could solidify, the liquidity issues disappeared.

Business executives agree that their organizations can’t cost- cut their way to profitability. Similarly nonprofit board members need to agree that nonprofits can’t continually cost-cut their way to maintain liquidity and mission accomplishment. These suggestions are all based on field experiences, and I hope they will be useful to others trying to maintain liquidity in an unusually turbulent time.

* https://www.newschools.org/blog/when-and-how-to-explore-a-nonprofit-merger/

 

General Rules for Boards #NonprofitBoards

The Massachusetts AG, on his way out as his term is ending, released guidelines for nonprofits.  Except for the specific resources listed at the end of the document, these guidelines are helpful references for every nonprofit.

Board Members of Charitable Organizations: Take Note of New Guidance From the Massachusetts Attorney General

Paul Ayoub, John McBrine, Melissa Sampson McMorrow, Julia Satti Cosentino, Erin Whitney Cicchetti

Nutter McClennen & Fish LLP

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As 2022 came to a close along with Governor-Elect Healey’s term as Attorney General of Massachusetts, the Office of the Attorney General published an updated Guide for Board Members of Charitable Organizations (the “Guide”). Last published in 2015, this Guide has served as a road map for members of governing boards of Massachusetts charitable organizations.

The newly-revised edition follows a similar format, but with heightened emphasis on board members’ duties to (1) be educated and informed, (2) carry out the organization’s charitable mission, and (3) pay close attention to the organization’s financial matters. The revised Guide also emphasizes the importance of diversity and inclusion in all of the organization’s actions – from board member recruitment and selection to the conduct of the organization’s activities.

The Guide is organized into the same nine sections as its prior version. Those sections – and material that is highlighted or emphasized in the new edition – are noted below:

I. Board Members Have Responsibilities

• The Guide retains the importance of understanding a board member’s duty of care and duty of loyalty to the organization – and that carrying out these duties takes time and energy
• New emphasis is placed on a board member’s responsibility to carry out those duties considering the organization’s charitable purpose and that these fiduciary duties should be viewed as “duties you owe to the charitable mission of the organization at least as much as, and in some circumstances even more than, to the organization itself.”
• The Guide recommends that the board periodically complete self-assessments about board effectiveness

II. Educate Yourself

• Emphasis is placed in the updated Guide on understanding the risk management aspects of the charity in addition to its governing documents
• The Guide now recommends regular board member trainings on fiduciary duties and organized access to relevant board materials

III. You Have the Right to Information

• No significant changes

IV. Pay Close Attention to Financial Matters

• Board members are fiscal stewards and regularly need to consider the organization’s short- and long-term financial health and act accordingly
• Boards should adopt gift acceptance policies and have a way to identify and reject restricted gifts that could impair an organization’s ability to carry out its mission (e.g., restrictions that could exacerbate racial and ethnic inequities)

V. Make Sure Your Board is Vital and Diverse

• Emphasis is placed on having board recruitment practices that encourage a diverse pool of candidates who reflect diverse racial and ethnic backgrounds, experiences, and skills and that include individuals who are connected to and reflective of the community served by the organization
• Term limits are highlighted to allow for rotation of board members and ensure equitable and inclusive practices

VI. Choose and Evaluate Your Organization’s Leadership Carefully

• The importance of equity and diversity in hiring and retaining an organization’s leadership is prioritized

VII. Get Involved in Setting Executive Compensation

• The Guide warns not to rely solely on compensation consultant recommendations, but to consider comparable compensation data in light of any potential reputational harm to the organization and in light of an individual’s total compensation (both from the organization and from outside sources)
• There is a reminder that board members, in certain circumstances, can bear personal liability if executives of charitable organizations are paid excessively or benefit unduly from the organization’s assets and activities

VIII. Beware of Conflicts of Interest

• The importance of identifying and addressing potential financial conflicts of interest remains in this Guide, but there is new emphasis on the importance of identifying and addressing potential conflicts from serving on other boards that may have competing goals

IX. Other Resources to Assist You in Your Responsibilities

• The Guide has an expanded list of guidance on good governance and board accountability from local and national organizations such as the Council of Nonprofits, Board Source, Association of Governing Boards of Universities and Colleges, Lawyers Clearinghouse, and Massachusetts Nonprofit Network

Attorneys On Board #NonprofitBoards

The topic of attorneys on nonprofit boards was considered in the following opinion piece.  I like this topic because it reinforces a position I have regularly taken: that professionals (whatever the field) can be helpful thought leaders and guides about their fields when serving on a board but they have to be very cautious about distinguish between "practicing" in their profession and governing with the former role not serving them or the organization well.  Attorneys bring an important lens to discussions within a board and this should be welcome.  They also have a network that can be helpful.  However, their lens and their practice may be distinct.  One example: real estate attorneys are not inherently litigators and are likely not well versed in those intricacies and further, would not do well to advise or represent the nonprofit on these matters.  However, their lens, the disciplines they have acquired may help with governing.  That said, the following piece does a fine job of helping further understand the distinctions.

 

Bush: What attorneys need to know when serving on a nonprofit board

January 4, 2023 | Jeffrey A. Bush

At the start of the new year, many attorneys find themselves preparing for new board positions. Just as important as preparing to perform our roles, however, is preparing to fulfill the obligations that come with those board positions. We are well-versed in the fiduciary duty that we owe our clients; at least some aspect of it has been covered in every continuing education class on ethics that I have taken. But are civic-minded attorneys as aware of the fiduciary duty that they owe when they serve on nonprofit boards? All who serve in that capacity owe a fiduciary duty to the organization, and that duty is different than the duty that is owed to a client.

The first part of the fiduciary duty for nonprofit board members is the duty of care. This concept should be familiar to corporate attorneys advising corporate boards. Duty of care involves spending the time and attention necessary to take care of the nonprofit. Board members must regularly attend meetings and stay informed of the areas of the nonprofit under their governance. If the attorney is on the finance committee, then they are responsible for managing the nonprofit’s financial situation, including overseeing investments, investment managers and the investment policy statement.

Board members must use their expertise to provide guidance to the nonprofit for which they are responsible and use diligence and care in making decisions. Board members are fiscally accountable to the organization and are required to ensure operational sustainability to fulfill the organization’s mandate, including managing the risks inherent in the nonprofit’s activities.

The fiduciary duty to nonprofits also includes a duty of loyalty, which means that board members must prioritize the nonprofit in all relationships that affect it. Board members cannot engage in self-dealing or otherwise give themselves an advantage in their leadership of the nonprofit by steering business contracts to their own businesses or to businesses of friends or clients — unless they can show that doing so is commercially reasonable. Board members should avoid material conflicts of interest. If such conflicts cannot be avoided, then board members should examine whether they should even serve on the board. It is usually best to recuse oneself when there would appear to be a conflict of interest.

The final aspect of fiduciary duty for serving on a nonprofit is the duty of obedience. This concept requires board members to obey all legal requirements as well as make sure that the nonprofit is following all its legal obligations. For board members overseeing the nonprofit’s finances, this includes the Indiana Uniform Prudent Investor Act, the Indiana Uniform Prudent Management of Institutional Funds Act, and ensuring the nonprofit completes all filings with the Internal Revenue Service. As attorneys, we are responsible for being well-versed in the applicable legal requirements or knowing when another attorney should be engaged and working with the rest of the board to ensure that all legal obligations are followed.

With all these obligations, it is crucial to have partners that understand these and other responsibilities and that help you honor your obligations. Counsel and external auditors are key partners, but so too should your nonprofit’s investment adviser be a key partner. At Goelzer Investment Management, our Institutional Advisory Services Team acts as an outsourced chief investment officer to help ensure members and staff honor their fiduciary obligations as they seek to grow their endowments and protect and leverage their operational funds.

Many attorneys are rightfully charitably-minded and serving on nonprofit boards offers them chances to make a difference in their communities. Yet because these roles bring additional fiduciary duties, it is critical that attorneys know their responsibilities and the obligations that follow.•

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Jeffrey A. Bush is general counsel and chief compliance officer of Goelzer Investment Management, one of Indiana’s largest independent advisory firms. Opinions expressed are those of the author.

An Advisory Board and a Twist #NonprofitBoards

Well, if you have read more than a few entries of this blog you know I hate, yes, hate, the use of the word "board" when referring to any body that does not have governing aka/fiduciary responsibility.  The City of Olympia (Washington) though has not only created a body responsible for yes, literally, advising regarding the use of revenues from a newly minted sales tax.  I do want to applaud the citizens for such a move and creating this program but for sure, while this Advisory "Board" has no fiduciary responsibility, no final control or authority, it is nonetheless a "board" even though it is not.  Funny enough, this body is labeled "board" but later in the article referred to as committee which I would pose better represents its true function.  Oh well.

But, more interesting is the commitment to ensure members of the group get to scheduled meetings by actually providing a stipend - small albeit -.  Equally important there are slightly larger stipends for members who may have limited incomes.  Hooray for the concept although this practice does beg the question: what, this group isn't awesome enough for folks just to want to be a part of it?  

Anyway, from the City's website:

 

City of Olympia seeks community members for new Cultural Access Program Advisory Board The City of Olympia is recruiting inaugural members for the recently established Cultural Access Program Advisory board. On August 9, 2022, the Olympia City Council approved the establishment of the Advisory Board, following voter approval in April of the “Inspire Olympia” proposition. The proposition authorized an additional sales and use tax for the purpose of funding arts, science, cultural and heritage programs.   The new, nine-member Board was established to ensure that the Cultural Access Program provides public benefits. As such, the Board will advise the Council on the formulation of processes, procedures, and criteria to carry out the goals of the Cultural Access Program and will ensure that the Program’s expeditions are invested based on the priorities and commitments made to Olympia voters.   The City is seeking to fill all nine seats on the Board. The Board should have a balanced representation of members with skills and perspectives from the performing and visual arts; culture, heritage, and scientific interests; and members that represent the communities the Cultural Access Program is intended to serve, with an emphasis on youth and traditionally underserved populations.   Relevant skills and experience could include: Leadership in business, educational, and cultural communities Interest and familiarity with public programming in arts, culture, heritage, and science Interest or experience in integrating and practicing equity principles in public outreach and program implementation Experience working with schools, students, educators, and families Perspectives from minorities and traditionally underserved populations   To reduce barriers to community member participation, the City offers advisory committee members stipends of $25 per meeting attended. Those members who certify as low income are eligible to receive stipends of $50 per meeting attended. Advisory Committee members may waive the stipend upon request.   The application period is now open and runs until Friday, January 13, 2023, at 5 p.m.  Members of the Cultural Access Advisory Board are expected to be fully seated in April 2023.   Applications and details on the application process are available on the City's website at olympiawa.gov/advisory.