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Info You Can Use: Legal Tips

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A couple weeks ago, Gene Takagi of the Non-Profit Law Blog made a post cautioning lawyers about issues to consider when representing a nonprofit.

As you might imagine, every one of his tips were important for members of a non-profit board and leadership to know as well. Some of his traps and tips are frequent points of conversation in the non-profit arts community: don’t write a mission statement that is too restrictive; be sure you have a viable business plan and don’t assume non-profit status is your only option; boards members should be aware they have a very real governance role; non-profit doesn’t mean tax-exempt or no-profit; all overhead is not bad; get board and directors insurance.

There were also some topics that are less frequently discussed:

Traps
1. Failing to inform the client at the outset of representation that you represent the organization and not any individual directors or officers.

4. Including “non-voting directors” in the organization’s bylaws (under most states’ laws, there is no such thing as a “non-voting director” and, subject to very limited exceptions, each director has the right to vote on all matters before the board).

5. Providing in the bylaws that the board of directors may combine in-person votes at a meeting with email votes to take board actions.

6. Reinforcing the myth that nonprofits should always minimize overhead expenses (even at the expense of building an appropriate foundation on which to build the organization’s operations).

7. Failing to inform the client about the differences among volunteers, independent contractors, and employees, and the risks of misapplying these classifications.

10. Failing to discuss with the client the benefits of having organizational policies that address the legal and management implications of conflicts of interest, proper gift receipts, misuse of social media, expense reimbursements, acceptance of noncash gifts, document retention/destruction, and whistleblowers.

For me, that first one about the lawyer representing the organization and not you always strikes me as worth repeating. I have never had the ill-fortune of being in a situation where there was a even the whiff of legal action. However, when I am reviewing contract clauses that make me uneasy or am faced with a potentially contentious encounter, I will find myself thinking that the legal department will cover me if worse came to worse. Then I have to remind myself that in fact, they won’t necessarily have my back because they serve the interests of the organization, which may not include protecting me.

Point #5 about mixing in-person and email voting is a reference to a prohibition in California law. However, reading the rationale behind the illegality of such action, it seems reasonable to expect other states would have a similar restrictions.

Since I have heavily summarized his post, it is worth taking a look at everything Takagi cautions and advises for the legal health of a non-profit

Is It Against The Law To Pay Me More?

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You may have heard about Dan Palotta’s recent TED Talk about how judging charities on concepts like administrative overhead ratios is hobbling their ability to solve huge problems.

He makes some persuasive points, though some of the concerns I had with his proposals when they appeared on the Harvard Business Review blog three years ago still remain.

Gene Takagi picked up on the talk and addressed legal considerations which would prevent non-profits from operating in the manner Palotta suggests. (Just to be clear, Palotta never suggests charities cleave to non-profit status.)

Takagi notes that charity pay scales are limited by laws governing 501 c 3s and so can’t compete well on salary if supporters show tolerance for doing so to attract the best talent. Expenditures are limited in much the same manner,

“If a for-profit spends 90 cents to make $1, it may be a perfectly acceptable profit margin, but if a charity spends 90 cents to make $1, it would be widely viewed as a terrible waste. As a result, many charities fail to properly report their fundraising expenses, and the IRS has raised the possibility of utilizing the controversial commensurate test, which addresses whether a charity is using its resource in line with its charitable mission…But this can’t be judged strictly on percentages, and charities should be allowed to experiment so if an honest fundraising and mission awareness-raising campaign fails, the charity isn’t slaughtered for it. The problem, however, is not the law, but the misguided public ideology of which Dan spoke.”

Charities are also often limited and discouraged from pursuing new revenue ideas by federal and state laws as well as popular sentiment.

I think the biggest question that this whole discussion raises for me is whether social attitudes are such that a for-profit company raising money for social issues will be tolerated. Given that people will give money to projects via things like Kickstarter without much consideration about whether it is non-profit or not, is the idea that non-profits do things that companies won’t due to lack of profitability and governments can’t/won’t due to lack of political will and expertise, over?

Currently I think there is a capricious element to Kickstarter campaigns that make it an unsuitable model for garnering long term support. However the very existence of such mechanisms may be shifting mindsets to a place where worthiness and overhead ratios are not mutually exclusive.

Info You Can Use: Fundraising Must Benefit The Group, Not The Individual

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The approach of the holidays provides me with a little more free time so I have been catching up on my “come back to and read” list. I got to reading a piece by Non-Profit Law blogger, Emily Chan addressing activities athletic booster clubs engage in that may endanger their non-profit status.

Since these clubs are organized under 501 (c) (3) just like arts organizations, I became a little concerned because I see similar things happening with some arts organizations.

The potential conflict Chan addresses is in making the amount of money a person raises directly correlate with the benefit to an individual like crediting against the payment of tuition/dues or travel expenses.

Furthermore, such a credit system still raises private benefit concerns regardless of whether a parent is considered an insider or even involved in the booster club. Lois Lerner, the Director of Exempt Organizations at the Internal Revenue Service, recently affirmed that crediting amounts raised by a participant against that participant’s costs (e.g., dues, travel expenses) is a private benefit violation that may jeopardize the organization’s exempt status.

What immediately came to mind is that a lot of dance schools have their students sell tickets, Entertainment coupon books, etc., keep track of what each person sells and rewards the kids. I don’t think there is any problem with one child only getting to choose glitter stickers because she sold less than the child who was able to claim a stuffed animal.

However, if those sales determined who got to perform or helped one person defray more of the cost of going to see a show in New York than another, there could be a problem. If it defrays the cost of everyone equally, or even a specific class within the group like sending the cast of a show to perform at a festival, then it isn’t problematic.

Really, it is mostly a matter of benefits specific to individuals. This also likely includes fund raising to benefit a specific individual, say the medical expenses of a musician who was in a car crash.

Individuals should not be soliciting contributions from donors with any suggestion or intention that the contribution will be directly used for that individual who solicited the gift. Additionally, the booster club should not accept any contributions that have been earmarked by the donor for a particular individual. Not only would such contributions not be tax-deductible for the donor, the booster club would likely be acting as a conduit in violation of the federal tax laws regulating private inurement and private benefit by allowing such money to pass through the organization to the individual without having exercised any control, oversight, or discretion over those funds

I wonder how this might apply to organizations that try to forge a deeper connection with donors by having them sponsor a student. Keeping in mind that I am not a lawyer, my guess is that if the organization is selecting the student being sponsored, there isn’t a problem. The money went into a general pot with no specific expectation of which student would benefit.

But what happens if the student drops out and the donor has taken a shine to another student and wants the sponsorship applied to her as a replacement? This is a tricky situation if you are hoping for the long term, continued support of the donor.

I also wonder if something changes with the student’s status that requires more funding than for any other student, say their place of residence changes so they must pay higher out of state tuition, can the donor be solicited or even direct additional money to benefit a specific student without endangering the non profit tax status?

The Board Police

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Via Non-Profit Law blog, Kevin Monroe of X Factor Consulting made a tongue in cheek post about crimes that the non-profit Board Police special investigation unit should be looking into. Among them are:

Impersonating a board officer. In many meetings, you may have difficulty spotting the board officers. They may not actually be the one running the board meeting…There are also reports of some organizations in which the officers have not officially been notified that they are board officers. They were absent at the meeting when elections were held and consequently unable to object to their election.

[…]

Misappropriation of focus – We know you’re familiar with misappropriation of funds — which itself is a serious crime. However, misappropriation of focus is also serious, but often undetected. This occurs when boards misunderstand their duty as directors and rather than focus on policy and strategy become obsessive about the operations of the organization. If you see repeated efforts to micromanage the staff, you’re probably observing a misappropriation of focus in action.

Conspiracy – … This often occurs before or after the actual board meetings to ensure a select group of board members always get their way on how they “run” the organization. You’ll know you’re in when you get invited to the “special meeting” of the select board members.

Obstruction of governance – any act or action that distracts the board from having substantive discussions or decisions about important issues or policies to move the organization forward in a strategic manner. This could include rehashing the past, or debating what color to paint the lobby, but they are all ploys to prevent real governance from occurring.

Take a look at the whole post, framing the problem as something to be handled by the Board Police brings a humor to a somewhat serious subject.

Except, the Board Police are pretty much a real organization according to one of Monroe’s commenters.

This past Monday, Australian Charities and Not for Profit Commission (ACNC) started operations.

One of their purposes is to provide advice and assistance to non-profit organizations, including ”

Reforms to remove duplication and streamline reporting and other regulatory obligations will make it easier for NFPs to go about their core business. They will allow donors and the general community greater access to information about charities, the type of work they do and the effect of their work.”

But the ACNC will also have enforcement powers to ensure compliance:

These powers aim to protect the reputation of charities doing the right thing so they are not tainted by the minority who are trying to avoid their obligations. Sanctions will only be used in the rare circumstances where charities deliberately do the wrong thing, do not respond to education or fail to take the opportunity to fix the problem.

In this case the ACNC will have the ability to take action like issue warnings or, in more extreme cases, issue directions or revoke a charity’s ACNC registration. Without the ability to issue serious sanctions if needed, the ACNC can’t effectively protect the vast majority of the sector or the general community.

According to the ACNC website, as of late August Parliament hadn’t decided on those powers. The commenter, Melaine, on the X Factor Consulting blog wrote, “NFP voluntary Directors will have duties and face penalties that exceed those of the biggest commercial boards. (Bad) Makes it even harder to recruit.”

Perhaps some of my Australian readers can provide more comment and context? (I’m looking your way Sydney Arts Management Advisory Group)

Would an organization like this be useful in the United States? Four years ago during the presidential election, people were calling for the creation of a cabinet level Culture Czar position. Presumably such a position would not only given arts and culture a higher profile and advocacy within the government, it would have likely resulted in some form of increased oversight and regulation. I wonder if everyone clamoring for the position considered the potential downside.

Given the increased scrutiny non profit charities are under across the country, it isn’t outside the realm of possibility that the U.S. will get its own version of the board police.

Info You Can Use: Doing Business With Board Members

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Since I am on the topic of board decisions this week, Non Profit Law blog recently listed a link about non profits doing business with their own board members.

While it is natural for non profits to seek out people from specific professions/skillsets to be on their boards in order to provide some expert guidance and advice, things get a little sticky when it becomes necessarily to contract professional services.

Since board members often have a personal investment in the organization, they may tend to charge extremely competitive fees for their services. As the article notes, it can also be a little awkward to be talking about paying someone else to do work that a board member in the room is perfectly capable of performing.

The article notes that not only is it difficult to avoid having some business dealings with your board members, it may be hard to actually get good people to serve on the board if they perceive there will be undue scrutiny of how their professional and volunteer activities overlap.

However, it is important to have a conflict of interest policy for board service. Failing to have one and follow it create potential problems for the organization, especially given the role non-profits serve in their communities.

Experts say one danger of so many veteran board members is that a nonprofit could lose touch with how a community perceives the awarding of contracts to members of its own board.

“Public legitimacy and support are very important, and a more isolated board may not be as aware of that,” said Francie Ostrower…

[…]

Board Source , an organization for nonprofit boards recommended by the National YMCA, suggests that board members who want to do work for the organization should donate their services. If they can’t, they should follow the board’s conflict policies.

Other critics of the practice such as Joshua Humphreys, a fellow at Tellus Institute, a Boston policy think tank, take a dimmer view.

“Best practice for nonprofits is to draw a bright line between board service and doing business with service providers,” said Humphreys. “It creates divided loyalties between the public purpose of the charity and the private gains someone is motivated by.”

Siegel (Jack Siegel, Charity Governance) said the practice chips away at the independent thinking of board members who are the recipients of contracts, as they tend to side with their supporters on the board in other matters.

“If you see conflict (of interest), you can almost bet there are other problems in the organization,” Siegel said.

The article goes on to quote Siegel pointing out that it is difficult to hold the work of board members to the standard you should because you have a relationship with them. This point struck a sympathetic chord with me as I remembered some occasions in my career where the quality of the work by a board member was never in question, but changes to elements no one really liked were never requested for fear of offending the board member by questioning their style/taste.

One of the suggestions for eliminating the conflict is that the person leave the board for the duration of their company’s contract under the assumption that if the person is really invested in the success of the organization, they will extend the same discounts as they would when they were serving.

What the article doesn’t mention is that if they don’t extend the same discount it may actually be better for your relationship with the person. If all those involved feel that a fair market price is being paid for the work, there is less potential for resentment on the part of the service provider over sacrificing time and income on a difficult project and less hesitation on the part of the non-profit to assert that their standards be met.

Still, this is all easy to say in theory. In practice, you run into the old question, “how do you fire a volunteer?” When people generously provide time, energy and expertise, they are investing a lot of themselves personally. It can be difficult to refuse their help without making it seem like you are refusing them as a person.

That is why it is good to have a well-constructed conflict of interest policy to which to point. When the situation arises where a board member will start to do business with the organization in a significant way, you can point to the policy and note that providing the service will, of necessity, change the board member’s relationship with the organization and as such the following actions must be taken per the conflict of interest policy.

Board Source has some general information on conflicts of interest on their website and some samples conflict of interest statements for purchase and download. (I have never read them so I can’t attest to their usefulness.)

Info You Can Use: Let Me Take Vacation, Or You’re Gonna Pay!

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Hat tip to Non Profit Law blogger Emily Chan for providing a link to an article on a subject near and dear to my heart — vacation time.

There are some problems non-profits can run into regarding vacation and over time pay, but reading further is only necessary if people in your organization work a lot of overtime and don’t take all their vacation.

Hmm, nobody clicked away.

I wasn’t entirely joking when I said problems related to the accrual of vacation and over time were near and dear to my heart. Putting aside the number of vacation and comp time days I forfeited last year, I am regularly told about the guy who retired and wiped out most of the next season’s budget.

That is one of the hazards covered in the piece on Olive Grove Consulting’s blog. While most of the laws discussed are specific to California, there is a pretty good chance your state has similar labor laws.

For instance, in relation to accruing a lot of vacation time:

One law that often catches employers off guard is California’s requirement that employees be paid all vested vacation wages at the time of termination. As a result, an organization should ensure that it has sufficient reserves to pay out all accrued vacation. If an organization has a vacation policy that does not cap the amount of vacation an employee may accrue – and if employees do not regularly draw down their balances by taking vacation – then, the potential liability on the organization’s books can become significant.

California law prohibits employers from adopting “use-it-or-lose-it” vacation policies where vacation is forfeited if an employee does not take it. But, employers are permitted to place a reasonable cap on the amount of vacation that an employee may accrue. Thus, for example, if an organization allows employees to take 80 hours of vacation per year, the organization may cap the maximum vacation accrual amount at 140 hours. That way, even if some employees do not regularly take vacation, they will never accrue more than 140 hours, which will allow the organization to avoid having a significant amount of vacation liability on its books. To do this effectively, the organization must clearly articulate its vacation policy, including all applicable caps, in its handbook or in a stand-alone vacation policy.

Note: I edited answers for two question on this topic together. Also, my emphasis- Joe

The article also covers over time pay and discusses the California definition of employees who may be classified as exempt. This definition, which is very close to the federal definition, is based on spending more than 50% of your time performing certain types of duties or belonging to certain learned professions like lawyers, doctors, accountants (but not bookkeepers), clergy, registered nurses (but not LPNs).

Creative and artistic professions are considered exempt. The Olive Grove blog doesn’t expound, but the federal Fair Labor Standards Act says that:

Some employees may also perform “creative professional” job duties which are exempt. This classification applies to jobs such as actors, musicians, composers, writers, cartoonists, and some journalists. It is meant to cover employees in these kinds of jobs whose work requires invention, imagination, originality or talent; who contribute a unique interpretation or analysis.

So even if your imagination is working over time, you won’t get paid extra for it.

The Olive Grove blog also has some informative material about laws regarding comp time in lieu of pay, disciplining employees who do not record their over time and whether a non-profit can consider over time to be volunteer work.

Just in case you like the idea of voluntary over time but don’t read the article, let me just tell you–DON’T DO IT!

“However, the DOL (U.S. Dept of Labor) also takes the position that individuals may not “volunteer” to perform work for their employer that is the same as or similar to their normal work duties. Instead, this is compensable work time. The DOL is also likely to take this same position regarding time an employee spends performing dissimilar services, if those services occur at the employer’s request, under its direction or control, or during the employee’s normal working hours.”

Again, because the laws of your locality may vary from these, just take this information as a guide to the sort of questions you should be asking about labor laws in your state

Info You Can Use: Commerciality Doctrine (What The Heck Is That?)

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Hat tip to Non-Profit Law blog for providing the link to Charity Lawyer Ellis Carter’s 2009 post about the Commerciality Doctrine. As you can probably tell from the title of this entry, I wasn’t really aware of this doctrine at all, but it is actually very important in terms of an organization’s 501 (c) (3) status.

According to Ellis,

Commerciality Doctrine has evolved in the courts and is applied to determine whether an organization complies with Section 501(c)(3)’s requirement to operate exclusively for exempt purposes. A key factor indicating an organization is operating in an excessively commercial manner is that its activities are in competition with those of for-profit commercial entities.

Reading what criteria the courts use as a test for whether a non-profit organization is operating in an excessively commercial manner, I start to get a little nervous:

-pricing to maximize profits;

-generation and accumulation of unreasonable reserves;

-use of commercial promotional methods, such as advertising;

-sales and marketing to the general public;

-high volume of sales;

-the organization uses paid professional staff rather than volunteer labor;

-the organization discontinues money losing programs; and

-the organization does not receive significant charitable contributions.

Most organizations probably don’t have to worry about accumulation of unreasonable reserves and seating capacity may limit high volume of sales. If arts organizations start to adopt dynamic pricing for shows, they may have to watch how high they push prices. But a lot of non profit arts organizations have professional staffs who have replaced volunteers somewhere in their history. Even those without professional staffs use advertising, sales, marketing and discontinue money losing programs. How do you not flirt with violating your status under this criteria?

So is it actually good to keep those money losing programs around? Apparently so…

Factors evidencing the absence of a commercial purpose include the following:

-lack of competition with for-profit entities;

-below market rate pricing;

-relatively insubstantial reserves;

-lack of commercial advertising practices;

-the absence of sales to the general public;

-low volume of sales;

-use of volunteers and low-paid non-professional staff; and

-significant charitable contributions.

This list almost makes a virtue of incompetence and lack of ambition.

But the first thing I thought of after reading this list was, what about the Roundabout Theatre? How the heck have they avoided being shut down on this basis. Except for requiring as significant charitable contributions as anyone else, they are a non-profit that essentially fails on every one of these measures.

They actually may have run afoul these laws and I am just unaware of it. Plenty of commercial Broadway producers have expressed criticism about the way the Roundabout and other non-profits like Lincoln Center enjoy a competitive advantage over them. Back in 2000, long before he became chair of the NEA, Rocco Landesman wrote,

“increasingly the template of success comes from the commercial arena, which is, in the end, not dedicated to the art so much as to the audience. The uber-model for this trend is ”the American Airlines Roundabout Theater,” whose artistic director, Todd Haimes, saved a bankrupt institution by adapting contemporary, market-savvy, the-audience-is-king techniques of modern corporations. Pleasing the customers, giving them what they want in the form they expect, works for Coca-Cola –…It would, I suppose, be hyperbolic to say that Todd Haimes has had a more pernicious influence on English-speaking theater than anyone since Oliver Cromwell (and it wouldn’t be nice, either, since Mr. Haimes is a personable and honorable man)”

Now it should be noted that Landesman’s piece expressed regret that the non-profit theater movement toward a commercial orientation due to market forces has meant that little original work is created any more. Though he has “accused Haimes of running a wolfish commercial operation in the sheepskin of a publicly funded institution.”

The idea that decision making in non-profits shouldn’t be motivated by a need to compete with commercial entities is probably part of the basis for the criteria of the Commerciality doctrine. Although Carter provides an example of it, I wonder how often and strictly the Commerciality Doctrine is applied to non-profits. With cuts to arts funding at all levels and an oft repeated litany that performances should be self supporting or not occur at all, is it fair to require that non-profits ignore the pressure to support themselves with strategies that create more earned revenue?

Todd Haimes has said as much,

“I feel enormous pressure to generate income for our theater,’…`I’ll do anything within reason, as long as it goes back into the nonprofit purpose of the Roundabout,” Haimes said. “So I’m trying to be more creative.”

With a $40 million budget in 2008, $12 million in donated and needing $13 million in sales, most of us are not anywhere near Roundabout Theatre’s ability to raise scowls from commercial competitors. We do face similar pressure to perform well and might well find our ambitions causing problems for our tax status given that so many other aspects of non-profit operations are being examined.

Info You Can Use: Does Friending A Candidate Endanger Your Non-Profit Status

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The Non Profit Law blog linked to a really great publication put out by the Alliance for Justice that explains whether your online activity might run afoul prohibitions in your 501 (c) 3 status. This is the clearest explanation of these issues I have read.

“This guide aims to answer the questions nonprofit managers most frequently face regarding the Internet and social media.”

The document covers situations that don’t involve online activity, but really it is the social media element that comprises the uncharted territory that people aren’t clear about. The document makes a distinction between lobbying, which a 501 c 3 non-profit can do and supporting a candidate, which they can’t.

Though sometimes the distinction is very subtle. For example, you can make a post on Representative X’s Facebook account, “Rep X, support the arts by voting Yes on Bill 123.”and that is direct lobbying. If you post a slightly different message, “People of My State, tell Rep X, to support the arts by voting Yes on Bill 123, ” and that is considered grassroots lobbying because it is a general call to others to take some action. If you post, “We love Rep X because she supports the arts and voted Yes on Bill 123,” that is promoting a specific candidate.

Except in some very specific circumstances, you can’t link to a candidate’s website. In fact, you can’t link to any website that promotes a candidate and you are responsible for making sure the content of the site doesn’t change since you first linked to it.

For example, you are doing a renovation and link to the website of the company that is providing you with sustainable wood as a way of proving to your constituency that you are acting responsibly. If the supplier changes their website to criticize a candidate’s stance on logging, your organization might be in trouble.

There are also restrictions on allowing employees to use company equipment, even on their time off, to express support for a candidate.

In answer the question posed by the title of this entry, no, you can’t friend a candidate on Facebook or follow them on Twitter. They are free to friend and follow your organization. Even though etiquette suggests you follow them in return, the IRS suggests you don’t.

About the only time you are safe to have a promotion of a candidate on your website is if you allow Google to place ads on your website and have no control over what they are placing.

There are a lot of other questions answered in the document as well. Since a lot of 501 (c) 3 organizations are associated with 501 (c) 4s which have looser restrictions, they provide some detailed guidance about how closely connected their activities can be. The guide also deals with setting policies for renting your mailing lists, guest bloggers, moderating blog commenters, using photos, hosting videos.

It is clear that there are going to be a lot of nuances specific to the activities of different organizations. However, if you have had questions about what is permissible as lobbying and prohibited as campaign support, and don’t have a tax lawyer immediately available, this is a good place to start to find your answers.

Info You Can Use: Board Action In The Age of Technology

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Hat tip to the Non-Profit Law Blog for providing a link to a piece on the Charity Lawyer blog about board votes by unanimous written consent.

An organization upon whose board I sit was recently revising its bylaws and the subject of voting on courses of action between meetings arose. We were especially interested in the legality of voting by email.

I can’t imagine we are the only ones having this conversation and fortunately, Ellis M. Carter at Charity Lawyer provides some answers.

“Unlike directors voting at a meeting which may require only a majority of the directors to approve any board action, most states that permit action by written consent require unanimous approval. Once an action by written consent is signed by all of the directors, the written consent resolution will have the same effect as a unanimous vote of the Board.

In such cases, a consent resolution will be sent to each individual director by mail, email or fax for his or her signature. To streamline the signature gathering process, the written consent document can permit counterpart signatures. This means that each director can sign the signature page of his or her copy and the signed signature pages, when taken together, are considered a validly executed document.

[…]

Generally, the action is considered to be taken on the date the last director signs the consent. For recordkeeping purposes, the signed consents must be kept by the secretary in the corporate minute book. Additionally, the resolution should be entered into the minutes of the next board meeting and made part of the official record of the corporation.”

In respect to emails, in order to remove any question of legality or whether an emailed response may have been made by an unauthorized person who gained access to an unattended computer, it is best to use a password protected electronic signature such as is available in Adobe documents. If that is too difficult, Carter suggests just printing the email, physically signing it and send it back by fax, regular mail or a scanned attachment to an email.

Info You Can Use: You Tweeted What About Me?!

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So after my post a couple weeks ago about why it is bad in a legal sense to have a restrictive social media policy, I am sure some of you have been wondering under what circumstances you can actually discipline someone for what they post online.

Well thanks to a piece on Forbes website, we have an answer (and hat tip to Gene Takagi)

As I had mentioned in my earlier entry, you can’t forbid, and therefore punish, any attempt to organize employees in a discussion about employment conditions. Under labor law, this is termed “protected concerted activity.” If a person is speaking for a group of employees or attempting to organize a discussion among employees, it is protected.

However, there are some tricky nuances to this and a link on the Forbes article to a National Labor Relations Board report, “Report Concerning Social Media Cases,” delves into the matter and presents specific cases to explain why the employee was or was not protected by the law. As Kashmir Hill, the author of the Forbes article notes, it is actually pretty easy and interesting to read for a government document.

My read is that with the current state of social media it may be fairly difficult to fire someone for complaining about work conditions. Essentially, if other employees chime in either on or off line to agree that an employer is a jerk for making employees work under certain conditions, the speech is protected as representing a group complaint. If other employees just comment that they are sorry to hear a situation upset the poster, then the poster may not be speaking on behalf of other employees.

It is only when a comment passes a certain threshold where a person is wishing violence upon people or making statements which are maliciously false that protection of representing a group complaint may not apply. However, being called a power-hungry, martinet jackass does not meet the standard for maliciously false. Suggesting a restaurant buys rat dropping to make their ground beef go further probably would.

Complaints that are clearly representative of an individual’s opinion aren’t protected, especially if they do not invite or receive the agreement of other employees. The same with complaints about the job which are not terms and conditions of employment like saying your store gets the ugliest customers in town.

One interesting fact that came up in a number of the NLRB case studies is that you can not have a blanket policy prohibiting people from posting pictures of themselves in company uniform or in connection with the company logo. ”

“…Employer’s logos or photographs of the Employer’s stores would restrain an employee from engaging in protected activity. For example, an employee could not post pictures of employees carrying a picket sign depicting the Employer’s name, peacefully handbill in front of a store, or wear a t-shirt portraying the Employer’s logo in connection with a protest involving terms and conditions of employment.”

The NLRB documents didn’t say it outright, but presumably you could fire someone if they posted a picture of themselves drunk in uniform at a strip club or urinating on your corporate logo. Though I have no idea if a number of employees urinating would be considered a group cause or not.

Another part of the NRLB document I found useful was two case studies starting on page 19 that first discussed a company’s social media policy that they considered to be too broad. In the second case, they found the policy was lawful but the other prohibitions were too broad. Finally, there was a case where a company’s policy restricting employees’ contact with the media was deemed lawful.

I felt all three were very useful because they all contained rules that any of us might include in our policies. In the first two cases, it is good to know what types of language one should keep out of policies. The last case included restrictions on media contact out of a desire to have one voice speak for the organization. Again, a situation for which many organizations strive.

“…we determined that a policy that stated that “the company will respond to the news media in a timely and professional manner only through the designated spokespersons” could not be read as “a blanket prohibition” against all employee contact with the media. Additional language in the rule referring to “crisis situations” and ensuring “timely and professional” response to media inquiries further clarified that the rule was not meant to apply to Section 7 activities.

Similarly, we concluded here that the Employer’s media policy repeatedly stated that the purpose of the policy was to ensure that only one person spoke for the company. Although employees were instructed to answer all media/reporter questions in a particular way, the required responses did not convey the impression that employees could not speak out on their terms and conditions of employment.”

Info You Can Use: Correct Organization Of Personnel Files

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Hat tip to Emily Chan at Non Profit Law blog for sharing a link to a Blue Avocado piece on how personnel files should be maintained. More specifically, what information should not be stored in a personnel file, if retained at all, and what should be kept in separate files.

Some of the prohibitions made sense given the need to maintain privacy of medical records and the fact that some documents must be released to federal inspection and it is inappropriate to provide access to the details of an entire employment history. It makes sense that nothing should be placed in the file that employees aren’t aware of.

There are some other factors I don’t know I would have ever considered when setting up a system of personnel records.

Following are the most important items to exclude:

* Any writing regarding the employee’s performance that the employee has not seen should not be in the file. For example, while the performance evaluation that was presented to the employee should be in there, a complaint memo from a department manager about an error the employee made that was never shown to the employee should not.

* Working notes or logs that a supervisor has kept for her own benefit, usually to assist in the drafting of a performance evaluation. The notes should be destroyed after documenting anything of importance in the annual performance evaluation.

* Any medical information (including drug testing information) about the employee from any source should never be in the employee’s personnel file, but rather in a separate, more restricted confidential medical file. This separate medical file could also include any medical-related information such as documents related to Workers’ Compensation, FMLA and ADA.

* Complaints or investigation reports (harassment, discrimination, ethics, licensing etc.). Any complaint about an employee that is subject to an investigation should not be in the employee’s personnel file, but in a separate complaint file. For example, if an employee is accused of sexual harassment, the only thing that should be lodged in the personnel file is any disciplinary action taken against the employee or a substantiated report of wrongdoing — but not the original complaint or investigation notes.

* These items also should not be kept in a personnel file, but in separate, confidential files:
o Hiring Documents, such as letters of reference, background investigation reports, or I-9s
o EEO Statistical Information for the EEO-1 Report
o Payroll records

In short, to manage all of this personnel information we suggest four sets of files:

1. A personnel file for each employee
2. A separate medical file for each employee
3. One folder that has Forms I-9 for all employees
4. A file (or set of files) for all employee payroll records

Ellen Aldridge, who wrote the Blue Avocado piece, also provides a downloadable check list of items to include. She follows the material cited above with information about what things employees can add to their files, how long you need to keep information, how to store the files and suggested policies and protocol for accessing and reviewing files.

The one thing I questioned, (literally-I ask about it in the comments section of the article), is the suggestion that notes a supervisor has been keeping to base a performance evaluation on be destroyed. The supervisor might be documenting incidents of absence, mishandling of cash or even episodes when customers praised an employee to a supervisor or were witnessed using exceptional judgment and initiative. Wouldn’t you want to retain this evidence if the employee challenged a poor evaluation or to defend the employee against potential layoffs?

There hasn’t been a response to my comment as of publication time. Perhaps the the advice will be to formally include these records as part of the evaluation and the destruction advice refers to informal handwritten notes versus a spreadsheet the supervisor has been maintaining.

If anyone has insight or wants to share their own best practices, I would be interested to learn the answers. My guess is that a modified version of these practices should be applied to volunteer records as well.

Info You Can Use: Shall I Pay Thee?

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Our friends at the Non Profit Law Blog linked to a presentation intended to be a guide about compensated time for non-profits. The reason the presenter, Veneable LLP, this is so important is because issues related to compensable time are becoming increasingly prevalent.

– Employers are failing to identify, record, and compensate “off-the-clock” hours spent by employees performing compensable, job-related activities.

– One third of surveyed respondents indicated that their organization had been hit with a wage and hour claim in the past year.

– Today, wage and hour class actions outnumber all other discrimination class actions combined.

– According to the U.S. Department of Labor, more than 80 percent of employers are out of compliance with federal and state wage and hour laws.

The presentation is in PDF format so you can proceed at your own speed and there is a helpful chart at the end that summarizes it all. The laws about compensable time are a little tricky, especially related to travel.

Among the topics the presentation addresses:

      -If an employee works unauthorized over time, do you have to pay them? (Yep)

-Waiting time vs. Off Duty – Do you have to pay an employee who is waiting for a task? (phone to ring, machine to be fixed, package to arrive)

-Difference between compensable and non-compensable “on-call” statuses

-Are employees paid when they attend lecture/training/conference/meeting?

-How comp time can be used in lieu of over time pay

-Are employees paid if they are encouraged to perform work/volunteering for a charity?

-Is your internship program legal?

-What types of travel require compensation? What types don’t? Are employees paid for work they complete on their laptops while traveling?

-If an employee is required to take their work-issued Blackberry or other work related equipment home with them, is any compensation needed?

-Do you have to pay employees if a snow storm makes the street impassable for two days?

As I mentioned, some of these issues are a little tricky and nuanced. Those dealing with employees who do a lot of traveling may find it useful to download the guide as a quick reference. I could quote you back the answers on a lot of these issues, but I would be hard pressed to explain all the travel rules.

Those Daring Leaders Of Non Profits

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A nod to our friends at the Non-Profit Law blog for noting that CompassPoint Non Profit Services and the Myer Foundation who teamed up three years ago to bring us the report I blogged on, Ready to Lead, studying trends in emerging leadership of non-profits, has come out with a new Daring To Lead, studying the status of non-profit executive directors.

The last time they studied this topic was 6 years ago, before the recession. Their new findings are worrisome in terms of the lack of succession planning but encouraging in respect to the amount of enthusiasm and lack of burn out the majority of executive directors feel in the face of the recession. Their three main findings deal with those topics: succession, the recession and executive director morale.

Finding 1
“Though slowed by the recession, projected rates of executive turnover remain high and many boards of directors are under-prepared to select and support new leaders.”

Due to the recession impacting their retirement plans, fewer executive directors left their positions than planned. A small percentage (9%) of respondents cited the lack of an appropriate successor as a reason for remaining. So while there hasn’t been as large an exodus as was once feared, little has been done to prepare for that eventuality.

“Executives and boards are still reluctant to talk proactively about succession and just 17% of organizations have a documented succession plan. Even more problematic is the extent to which many boards are unfamiliar with the dimensions of their executives’ roles and responsibilities. Just 33% of executives were very confident that their boards will hire the right successor when they leave. Performance management is a critical means of being in dialogue with an executive about success and its metrics, yet 45% of executives did not have a performance evaluation last year…Without consistent, meaningful engagement in what the job requires, many boards are under-prepared for their critical role in executive transition.”

The report also cites some numbers which indicate a series of mishires by boards and unclear expectations by boards and executives. One of the biggest challenges executive directors face is establishing an effective partnership with boards and getting the support they need in the early years of assuming the new role.

“It appears that many boards see executive transition as ending with the hire, when in fact leaders—nearly all of whom are in the role for the first time—need intentional support and development as they build efficacy in the executive role.”

Finding 2
The recession has amplified the chronic financial instability of many organizations, causing heightened anxiety and increased frustration with unsustainable financial models.

Hardly a surprise that many non-profit leaders are worried about whether their organization will continue to exist in these difficult economic times. Many executive directors reported having less than 3 months of cash reserves. According to the report, the common guideline is to have between 3 and 6 months. Many first year leaders are faced with the most daunting of situations.

“Thirty-two percent (32%) of executives in their first year on the job have less than one month of operating reserves; in other words, those on the steepest part of the learning curve often have the smallest margin for error.”

It it any wonder than that a listening tour by Building Movement in 2004 found a lot of prospective leaders in the next generation, while chomping for greater responsibility in their organizations, were reluctant to assume the executive position. (My post on their report here)

Finding 3
Despite the profound challenges of the role, nonprofit executives remain energized and resolved.

The very encouraging news in the face of all this.

“Forty-five percent (45%) reported being very happy in their jobs, and another 46% reported that they have more good days than bad in the role. Levels of burnout, especially given the economic climate, were low; 67% of leaders reported little or no burnout at all. In fact, leaders distinguished between burnout, which they associated with disengagement and ultimately leaving the job, and the realities of fatigue and elusive boundaries between their work and personal lives that go with the job. Forty-seven percent (47%) of executives reported having the work-life balance that’s right for them, while a significant minority (39%) said they did not.”

One of the biggest challenges executive directors reported they faced was human resource management. Attracting people, retaining them once they were trained and had skills to find better work and motivating those that stick around toward a unified organizational goal comprise a tough task for these leaders. There seemed to be a loose process of delegation and sharing of responsibility that didn’t approach formal mentoring.

“And a large majority (81%) reported having someone on staff that they trusted to make important organizational decisions without consulting them. Explicit executive mentoring of other staff was a relatively infrequent practice, with 31% of executives reporting being in an explicit mentoring relationship.”

The leaders themselves eke out a rough system of acquiring leadership training/mentoring/coaching/peer networking to improve their own skills.

Few executive leaders spend significant time interacting with boards of directors. 55% responded as spending less than 10 hours a month on board related activities which is at best 6% of their time. According to the report, other studies have found that executive directors who spend 20% of their time on board related activities are most satisfied. Most of those responding to the Daring to Lead survey were dissatisfied with their board relations.

As succession planning has been one of my favorite topics, you know I am going to suggest people should read the results. It is only 20 pages long. They make suggestions at the end about how to improve the overall situation. The general thrust of their advice is clear before you reach it–basically boards need to do a better job of succession planning and find ways to support and engage with the executive director more frequently and effectively.

One area that isn’t really covered in the body of the report but that is mentioned in the calls to action at the end is for funders to recognize the role they play in perpetuating the current situation and how their initiatives can move things in a more constructive direction.

Info You Can Use: Tix, Pix, Kits and Internships

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I am a busy, busy boy this week which is why I ended up not posting yesterday. Hopefully things will calm down a little by next week. So by way of recompense for not posting yesterday, I offer you four links to practical information for use in your arts organization. I am sure at least one of these links will prove useful to you.

First up, Richard Kessler recently posted a toolkit for getting parents involved in arts education, Involving Parents and Schools in Arts Education: Are We There Yet? What is special about this guide is that it is written by parents for parents. Presumably, parents will know what best motivates them to get involved. As Kessler says, “You have to admit, there’s something to be said about a guide that emerges directly from the work of parents, educators, and partners, rather than from staff.”

I haven’t gotten a chance to look at the whole thing, but I am encouraged that the second chapter is “Understanding Parents” and the fifth chapter is “Motivating Parents” with the “Educating Parents” in between. In the arts I think we often want to skip past the understanding and educating parts and move straight to motivating audiences into the action of attendance. The handbook reminds us of the proper order of things. The guide is 45 pages long. Fifteen pages are devoted to interacting with parents, the other 30 odd are sample forms, checklists and templates to use in organizing parents toward a school arts event.

Next, a link from our friends at the Non-Profit Law blog to the Department of Labor’s fact sheet about what is allowed during an internship under the Fair Labor Standards Act. It should be noted that these rules only apply to for-profit businesses at the moment, but a footnote they state (my emphasis) “Unpaid internships in the public sector and for non-profit charitable organizations, where the intern volunteers without expectation of compensation, are generally permissible. WHD is reviewing the need for additional guidance on internships in the public and non-profit sectors.” So it might be prudent to design your current internship program with the for-profit guidelines in mind.

Chad Bauman talks about a plan that the Arena Stage formulated to wean people off student discounts. They used to offer $15 tickets to people under 30 during the week prior to the performance. The problem was, once they turned 31, their ticket price went up to $60. It appeared this steep price jump was discouraging people from continuing to attend.

Now their plan is to offer a “pay your age” pricing for 3% of the seats starting two months before the first performance. The hope is to not only create the idea of paying an increasing amount as you age, but also emphasize the importance of buying tickets early rather than the week of the performance.

This program is still only available to people under 30. You don’t pay $85 if you are long lived. In the comment section of the entry, Bauman addresses the potential sticker shock a person might get upon turning 31 and finding they now have to pay $60 instead of $30. I really appreciate his view of cultivating a person over 10-15 years.

“Once a patron turns 31, and we have already gotten them into a pattern of buying early for a discount, we would then offer them a 3-play preview subscription acquisition promo probably in the range of $99 for three plays (or $33 per ticket). After they “age-out,” my next major priority is getting them to subscribe. Then once they subsribe, I will work to get them to upgrade their subscription packages. This is a long term strategy that really looks at the customer over a span of 10-15 years. From first time PYA buyer to full season subscriber and donor will probably take 15 years.”

Finally, if you use images from the internet and are confused about the difference between royalty free and copyright free images or aren’t really even sure about acquiring images to use, Tentblogger has a good comprehensive guide (with supporting images, of course) dealing with all these questions and more.

Info You Can Use: Volunteer Liability

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An appreciative nod to the Gene Takagi at Non Profit Law blog for linking to a Charity Lawyer post about a non-profit’s liability in respect to volunteers.

Guest blogger Deanna Rader notes that a non-profit may be liable for the actions of their volunteers under a doctrine known as respondeat superior which holds that an employer can be responsible for the acts an employee commits in the course of executing their duties. Some states have extended this concept to include volunteers.

In this context, Rader suggests that care be taken in selecting and training volunteers.

* How will volunteers be utilized? The risk of liability increases as the volunteer is given more responsibility and independence. Carefully choose the responsibilities that will be given to volunteers. Also, there should be a clear delineation between the tasks performed by employees and those performed by volunteers.

* What selection criteria should be used? You should use care to ensure that the volunteers selected are fit to serve in the positions at your agency. Your selection criteria may differ based on the responsibilities given to different volunteers. If you are using volunteers to serve children, disabled individuals, or other vulnerable populations, your selection criteria may include a background investigation and criminal history check. If your volunteers sort food for a food bank serving adults, however, a background investigation may not be required.

* What training is necessary? Before putting volunteers to work, they need to be trained to perform the assigned tasks. Otherwise, you could be held liable for their negligent performance of those tasks if it causes injury to others. Also, the nonprofit organization could be held liable if a volunteer who is not properly trained injures himself or herself because of inadequate training.

* How will the volunteers be supervised? Volunteers should have appropriate supervision based on the tasks assigned. A warehouse volunteer who is performing physical labor may not need close supervision, whereas volunteers dealing with vulnerable populations may need to be closely monitored.

* How will problems be addressed? Although good volunteers provide invaluable assistance, bad volunteers can expose you to substantial liability. Do not be afraid to address problems head-on and terminate the volunteer relationship if a volunteer exhibits inappropriate behavior.

Rader also address injury that a volunteer might take in the course of the service to the non-profit. Employees are covered under worker’s compensation laws while volunteers are not. However, it is important to clearly delineate between the two categories of workers. In addition, employers have a responsibility to provide a safe work environment to everyone who may enter their premises, regardless of employment status.

“An employer also has a duty to maintain safe working premises for an employee. Many states have applied this doctrine expressly to nonprofit organizations, requiring them to maintain a safe place for volunteers to work or finding them to be negligent in failing to provide a safe place for a volunteer to deliver services. This duty can apply even if the volunteer is working off premises while providing services for the nonprofit organization, making the nonprofit corporation liable for the actions or inactions of a third party.”

Among the steps Rader recommends taking are having volunteers sign a general waiver and release that informs them about the possible hazards they may face. She also mentions having volunteers work with a buddy or a team so they are never alone.

All this seems very valuable for the performing arts. I have worked in places where volunteers have done everything from ushering to construction to driving farm tractors. There has been ample opportunity for them to injure themselves or each others. We rent our facility out to groups and have had other people’s volunteers damage equipment on a number of occasions for which we held the renter liable.

On the flip side, performance groups often don’t have their own facilities and have their volunteers meet them at an unfamiliar place like my theatre to help them put up a show. In such a situation, you are dependent on the performance facility’s maintenance program and good practices to keep your volunteers safe.

Info You Can Use: Beware Non-Profit Identity Theft

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Non-Profit Law Blog editor Gene Takagi encourages all non-profits to take note of a recent investigation by Forbes magazine that uncovered someone redirecting non-profit registrations to a post office box in Las Vegas. The majority of the registrations have been for religious organizations, but the weakness in the IRS’ system could be exploited to hijack nearly any non-profit’s registration.

Someone has hijacked the tax identity of more than 2,300 tiny or defunct nonprofits, apparently taking advantage of a hole in a new electronic Internal Revenue Service filing system to list the same person as a charitable official at the same mail box drop in Las Vegas.

[…]

A search on Melissa Data of nonprofits in that zip code produced 2,370 listings. A random spot cross check by Forbes of dozens of them on the official IRS site listed Alexander and the N. Rainbow Blvd. address in every instance. The nonprofits originally were located elsewhere all across the country.

[…]

Another nonprofit listed by the IRS as being led by William Alexander out of Las Vegas is Godsline Ministries. The clothes-donation charity used to be located in McMinnville, Ore.–and died there about seven years ago, according to Rob Rabon, who ran it with his then-wife. “It only lasted two or three years,” he said. “We went to the state and filed papers dissolving it.”

Yet the IRS proclaims Godsline alive and well, with the same tax identification number as when the Rabons ran it.

The problem has its roots in the recent requirement that non profits making less than $25,000 file a statement to that effect. If you recall, there was a big panic last year that these small non-profits would lose their status because they were unaware of the requirement. Since these small entities don’t have a lot of resources, the IRS endeavored to make it easy for them to verify their status with a simple postcard or online filing.

Because so few details are required in the filing, there isn’t a lot of verifiable data being supplied to the IRS. This makes it easy to slip in and replace the authentic organization. The Forbes articles notes that the names of the small non-profits in danger of losing their status were published in an attempt to make people aware of the impending change, but in fact may have been serving to let fraudsters know which organizations were vulnerable to identity theft.

Info You Can Use: Good Governance Policies

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There is an old adage about the cleanliness of a restaurant restroom being indicative of the care being used in the kitchen for food preparation. There really isn’t an actual relationship between these two facts, but a dirty restroom is enough to give one pause.

The Non-Profit Law blog says the IRS takes a similar stance on whether you check Yes or No on your Form 990 about the presence of policies in the following areas:

* Conflict of Interest Policy (Part VI, Section B)
* Executive compensation approval process (Part VI, Section B)
* Document Retention and Destruction Policy (Part VI, Section B)
* Gift Acceptance Policy (Schedule M)
* Meeting minutes document practices (Part VI, Section A)
* Review process of Form 990 by the Board of Directors (Part VI, Section B)
* Whistleblower Policy (Part VI, Section B)
* Joint Venture Policy, if applicable (Part VI, Section B)
* Policies regarding chapters, affiliates, and branches, if applicable (Part VI, Section B)

It is not illegal to lack these policies, but their absence can be a sign of poor governance and therefore contribute to a decision by the IRS to subject an organization to greater scrutiny.

Emily Chan notes that just because you have policies in these areas doesn’t mean you are covered. It is important to evaluate the policies to ensure they are appropriate for your organization and its ability to adhere to them, comply with the law, are understood and actually practiced.

She supplies the following helpful info: “Note changes to policies are not required to be reported to the IRS unless such polices or procedures are contained within the organizing documents or bylaws and regarding certain subject matter such as conflicts of interests. See Form 990 Instructions.”

If an organization doesn’t have a policy, Chan advises not rushing to formulate them out of a desire to appear to be exercising good governance for public relations reasons (and to perhaps avoid the IRS’ steely gaze). Poor policy being nearly as bad as no policy. Proper policy takes time to formulate so give yourself the time to develop it. In her tips for evaluating existing policies there is an implication that one should avoid adopting the policies of other organizations in any significant degree.

The guidance she provides for creating new policies is:

Thoughtful considerations about how to get to “yes” can include questions such as:

* Which policies have a higher priority based on the circumstances of the organization? For example, an organization that frequently accepts non-cash gifts may have a more pressing urgency to adopt a useful gift acceptance policy as opposed to an organization that hardly, if ever, accepts donations from the public.
* What are anticipated governance issues or past governance issues that these policies should address?
* What kind of capacity limitations – staff, financial resources, or otherwise – should we be mindful of in drafting and adopting a new policy?
* What is the projected timeline for drafting such policy and presenting it to the board?
* If anticipating a prolonged delay (due to resources, time, etc.) before formally adopting such policies, what problems might this cause and what can the organization do to help mitigate these risks?
* Is the organization prepared to explain to the IRS, its constituents, or others why it currently does not have a certain policy and articulate its action plan moving forward to adopt one?

Additionally, it is important to note an organization lacking the recommended policies is not without any recourse on the Form 990. For example, Schedule O (2010) allows for supplemental narratives to further explain the policies or processes used at the organization to address these governance concerns.

Info You Can Use: Board Minutes

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Emily Chan over at Non-Profit Law Blog has written a two part series on board minutes. Both entries comprise a fantastic resource for anyone who has questions about the format and content of board minutes and the laws surrounding them. I was fortunate enough to be working on my most recent board minutes when part 1 was published and made some changes in response to the suggestions she makes. I am also a big arts administration geek and excitedly awaited the second installation of the series so I could post about it.

Part One is mostly about the format and content of the minutes. In it, she enumerates some common mistakes that are made.

* Failing to document a quorum was present;
* Failing to document or provide a clear description about a board action taken;
* Drafting a transcript of everything said at the meeting, including information that might be harmful to the organization if read by someone with access to the minutes (e.g., employees or members) or by a court reviewing a board action;
* Drafting and distributing minutes to directors after a lengthy period of time has passed;
* Waiting to approve minutes from past meetings until a substantial period of time has passed, decreasing the likelihood that mistakes will be caught and corrected; and
* Failing to maintain a reasonable document management system, resulting in the loss of minutes from past meetings.

The format of the minutes can vary, but a person unfamiliar with the organization and the issues it faces should be able to easily understand what happened in a meeting and what decisions were reached. Chan outlines what specific information that should appear in the minutes. She also discusses what information should be kept confidential, how a board should proceed into executive session to keep that information confidential, how the minutes should reference the executive session and how the minutes of the executive session should be kept.

The format should be standard from meeting to meeting, including the detail in which decisions are recorded. Minutes should be issued before the next meeting or within 60 days of the last meeting and kept forever. I always wondered about that last part. Minutes are among the items the IRS advises a non-profit keep for ever.

Which provides a segue to Part 2 of the series which deals with the legal aspect of board minutes. Directors and members both have a right to access the board minutes. The rules relating to access vary from state to state, Chan deals with California’ laws.

The IRS also has an interest in seeing the minutes. The bulk of the entry is devoted to discussing what practices are important to stay in compliance with rules and regulations for non-profits related to governance, tax code and audits.

Different agencies of your local and state government may also want access to minutes, especially if the organization is involved with legal actions associated with decisions made by the board. In the course of the merger my presenters consortium is seeking to pursue with a sister organization, the secretary of state requires copies of board minutes where different decisions and resolutions were discussed and passed.

Stuff To Ponder: Alternatives To Forming A Non Profit Org

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If your new year’s resolution is to do good this year, go for it! But if you are thinking of starting up a non-profit, you should be aware of the challenges you face. Both the normal processes to follow when starting a new organization as well as emerging scrutiny by the federal government. The Non-Profit Law blog has been packing a lot of informational goodness in their posts over the end of last year and the transition in to this one. Among their tweets of the week for last week was news of extra scrutiny of non-profits by the IRS.

The Gene Takagi and Emily Chan who write Non-Profit Law Blog also linked to a piece they wrote for the American Bar Association outlining the considerations a lawyer and their clients should use to evaluate whether they should actually form a non-profit organization. Many of the suggestions made are just good sense for forming any business including evaluating the need, whether it duplicates the efforts of another group, if there is sufficient clientele and a support base present in the community. They make suggestions of alternatives to consider.

But another person they link to in their tweets of the week really does a great job of providing these alternatives. Allison Jones makes suggestions for 6 alternatives with links to more information about pursuing these options.
 I had never heard of an intrapenuership myself.

* Free agent: More and more people are affecting social change outside of an organization. Harnessing social media, you can mobilize your network to take action or support a cause without the hassle of incorporating….

* Informal group/club: If the issue you are addressing is small or very specific (cleaning up a local park or stacking shelves in a local food pantry) you may just be able to round up a group of friends and get to work….

* Giving circle: … In giving circles you pool money and resources together to support an organization you all select. The focus is usually on a local organization, often extends beyond giving financial support, and the circles can be formal or informal….

* Local chapter of a national organization: … You can build on existing resources, support, and guidance to make a difference. Organizations that focus on professions, such as Young Nonprofit Professionals Network, Grant Managers Network, or Emerging Leaders in the Arts, tend to have chapters across the country. However other organizations in different causes, like the Reeve Foundation are open to supporters launching local chapters as well….

* Intrapreneurship: Do you work or volunteer for an awesome organization? Maybe you noticed a need because of the work you do? This can be tricky as many organizations are pressed for resources and time. However, you can harness your organization’s infrastructure to make small steps in addressing the need you have identified. Organizations are more willing to support innovation if there is someone (i.e. YOU!) willing to take the lead. Start by collecting information on the need and presenting it to your organization….

* Fiscal sponsorship: In fiscal sponsorship a nonprofit will allow you to operate under their 501c3 status….You should find an organization whose mission and work align with what you want to do and reach out to them directly….

Holiday Power Down

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I am away from home for the holidays this year so my mind will be turning to thoughts other than arts management until after the new year. A couple of time sensitive links before I sign off until then, both from the Non-Profit Law Blog.

First is a piece in the Wall Street Journal about mistakes people make when donating to charity. Important things to think about if you haven’t given yet, but definitely intend to. One nuance that I wasn’t aware of-

“When you’re donating tangible physical property, you can only deduct its fair market value if the charity’s mission directly relates to the property. So, if you give your picture to a museum, whose mission is to display art to the public, you can donate the full appraised value. But if you give it to a school or other charity that doesn’t showcase art as its primary mission, the deduction is based on what you actually paid for the piece”

On the other side of the equation, a quick primer from Pro Bono Partnership on what sort of acknowledgment is required of a charitable organization when donations are made. They include some examples of ways to structure an acknowledgment letter. They also remind you about what portion of a donation is and is not deductible.

That is about it from me for the year. Best wishes to you, your families and your arts orgs for joyous holidays and a prosperous new year.

Social Network Just For Non-Profits

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Via Non-Profit Law blog, Facebook co-founder Chris Hughes is launching a social network, JUMO, later this year to connect non-profits with supporters. If you watch the video accompanying the article, you will learn that while Hughes has left Facebook, he is still supports its use. Jumo users will be able to easily transfer their Facebook information over when he opens the service.

Hughes’ hope is to provide a way for organizations to develop relationships prior to requesting assistance. “Hughes thinks that the call for support should come only after people and organizations have built that connection with one another. All too often, said Hughes, the donate button on websites is big, flashy, and colorful, and email calls to action are usually in all caps, starting with the word “Urgent!” Hughes hopes that Jumo will move organizations toward a new era where relationships are forged and cultivated before calls to action.”

Earlier the article notes: “To do that, the platform will be broken up into three main components: Find, Follow and Support. First, Jumo will help you find non-profit organizations by learning the types of things that interest you and making suggestions. Second, the site will help you follow those organizations by receiving a stream of updates about the work they’re doing and how that work is affecting real people.”

In the comments section, some wonder if people will really join another social network. I don’t necessarily share that concern. I think people who are interested in causes will welcome a place that aggregates information and lets them connect with those causes. Non profit organizations should differentiate how they use the different technologies. You might encourage people who want information on ticket specials and the hot news about just signed artists to pay attention to your Twitter feed or Facebook account. Whereas you would provide information on outreach efforts and volunteering opportunities on the Jumo account.

Focusing on a few communication channels is about all most arts organizations have the staffing to handle in any case. Developing a separate flavor for each channel and leveraging it to serve the interests of different segments of your audience is probably better than replicating the same content verbatim on each is probably a better use of staff time in any case.

The real benefit to non-profits would be if people started using Jumo in ways not anticipated by the creators, spurring the development of features specific to the needs of non-profits.

Five Rs of Success

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So I am beginning to think that adding the Non-Profit Law Blog to my Google reader was one of the best things I have done in terms of keeping myself informed on stuff to blog about. Not to send everyone abandoning my blog to hang out there, but they offer a lot of worthwhile information. (In case you haven’t been reading my blog for very long.) Last week Emily Chan did an entry on social media policy resources for non-profits.

Among the links she lists are pieces by Beth Kanter, one of which deals with the question of whether your organization needs a social media policy. Chan also links to a piece by Sharlyn Lauby on Mashable about 10 things that should appear in your social media policy. I found both of these helpful, but there are a number of other good links Emily Chan lists and then Beth Kanter has a slew of other related links in her article.

Kanter’s article has some good links for developing policy, case studies and cautionary tales about how posting the wrong sentiments and pictures can get you fired. The one that really caught my eye because of its constructive approach was a slide show by Sacha Chua, “The Gen Y Guide to Web 2.0 at Work” Chua created a hand drawn slide show aimed at Gen Yers which warns them about treating co-workers like college buddies and not applying themselves to their work.

Her tips for success at work are to Read, Write, Reach Out, Rock and Repeat: Read as much as you can; Write and Share What You Have Learned; Reach Out to others (help, get mentors, as questions); Rock at what you do and work at strengthening your weakness; and of course, repeat all those steps.

It’s more exciting and informative with her illustrations, trust me.

I don’t think it takes much effort to realize these are good guidelines for every worker, regardless of what generation they have been categorized in. I especially take it to heart because like Chua, my blog helped me get my job. While I do share links that are of interest, I don’t do it as often I want to because I don’t want to be that guy who sends a lot of links that have little relevance to the recipient. I am thinking maybe I don’t need to send more links as expand the list of those to whom I send really relevant ones.

Info You Can Use: So You Wanna Join A Board?

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I believe I have covered the subject of considerations to make when joining a non-profit board before, but Emily Chan did a terrific entry on the topic on Non-Profit Law Blog this week. She links to the BoardSource page on this topic at the end, but she reminds us of additional things to think about.

Among her suggestions are to research on the organization you have been asked to join by reviewing the financials, bylaws, ensuring they have board liability and evaluating the personality dynamics on the board and their work process. Chan also mentions one of the areas I think is often overlooked–education. People who are familiar with boards on a basic level will know there are fiduciary and legal responsibilities to attend but may not really push to receive a thorough education in these areas and about the organization in general.

Education: Will you have the tools necessary to succeed at this organization?

Incoming directors at an organization may have different educational needs for creating the right environment to thrive on the board. Factors such as past board experience or work experience in the nonprofit sector can be useful in quickly adapting to a director role and executing those responsibilities. Likewise, an organization’s investment in or opportunity for board development and mentorship may be an important factor of an ideal work environment for individuals who are first-time directors or new to the nonprofit sector. For those seeking board education, a few topics to consider are:

* Orientation: What information will be covered? What are you expected to take away? What type of resources will be provided? Will you need more help or information after this?
* Training programs: Are they offered? If so, do they address the skills and areas you need the most help with? Are they pre-scheduled or provided as needed? Will you need more training and education down the road?
* Job description: What is being asked of you? Are your responsibilities and duties understandable and realistic? Can you fulfill this role?

I also really like Chan’s comments on how to evaluate the personality dynamics of the board, but I didn’t feel I could copy that much of her entry and offer so little original insight of my own. Obviously, the article can also serve as a guide for the materials, information and education non profits should be prepared to present to a potential board member so that a well informed decision is made.

Duelling Boards

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A nod to Non-Profit Law Blog for their link to a very extreme situation addressing the question of who owns a non-profit. In a story that appeared in the Star-Tribune (MN) and Non-Profit Quarterly. The founder of a non-profit that works with former inmates was frustrated with what he saw as a lack of responsiveness from his board. He formed a second board with a former member of the first board. This second board voted to dissolve the first board and install themselves as the governing body. According to both articles, the founder ended up fired and being lead away by police in the presence of both board presidents, each claiming they were in charge.

The short answer about who is in charge is always the board. They bear the responsibility of the governance of the organization. But given that organizational founders are generally the ones who institute the formation of a board asking the initial members to serve, does a founder have an ability to choose his/her own board? There is a point where the ability to select board members passes from the founder’s hands. My suspicion is that absent a provision giving the founder or executive director the power to make appointments, this occurs once bylaws have been completed and properly filed.

The next logical question is, when a board is not living up to its responsibilities, what recourse do people have in replacing them? Presumably the board can be sued for not meeting their responsibilities and a court could dissolve the board and order the formation of a new one. I have never heard of this happening, though I am sure it has, so I can’t be certain. It may not be the board as a whole which is dissolved and only those whom have been proven to be remiss in their duties who are removed from the board. But basis of this would be whether members attended the required meetings and were diligent in their review and handling of organizational matters. If it were not essential or required that the members return calls or attend the organizational events, it might be difficult to have the board dismissed. If they were moving forward with the strategic plan and operating budget at a rate a court found reasonable, again it could be difficult to unseat them.

If the allegations of mismanagement originate from within the organization, as it did in this case, then there is also the stress of having the board and staff in a confrontational stance complicating the situation as well. As I mentioned, I am sure there have been times when boards have been dissolved because they failed in their duties, but I wonder how many of those instigated by staff. If anyone on staff is going to do it, it would be the founder given how much they have invested in the organization. Staff members may have provided materials to support the case against the board, but it has to take a lot of moxie for a staff to declare a company is ill-served by its board and initiate legal proceedings.

More On Mergers And Alliances

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I have had non-profit mergers on the mind of late due to some personal experience so it is no wonder that two entries on the subject from different blogs caught my attention today.

The first was a book review by Gene Takagi at Non-Profit Law blog. He recommends Nonprofit Mergers & Alliances by Thomas A. McLaughlin. Takagi starts out referencing a quote from the book supporting the old truism that it is best to enter a negotiation in a position of strength.

“Indeed, the book had me at “hello” or, rather, its first sentence: ‘The best time to consider a merger or an alliance is before it is necessary, when coming together with another organization will mean combining strength with strength, and when the collective energies and the creativity of the two or more entities can be used proactively instead of being sapped by the demands of crisis management.’ “

This concept is actually central to the commentary made in the second blog post I saw today, Drew McManus talking about Philadelphia Orchestra and Philly Pops decision not to merge. The former would have absorbed the latter. Drew cites the troubles the Utah Symphony and Utah Opera had with their merger. The orchestra and pops adopted a gradual approach to the merger and that revealed some of the potential difficulties they might face as a single entity. Both organizations will work in close partnership, but retain separate governance structures.

As you might imagine from the title of the book he reviews, Takagi notes that there are different stages to both mergers and alliances and lists them out. According to Takagi, the book outlines the pros and cons to both approaches and provides some good advice about very complex undertakings.

The book may be a good resource for the next generation of non-profit leaders. Apparently McLaughlin feels that “nonprofit services are fragmented and how consolidation is part of a nonprofit’s life cycle.” Given all the talk about mergers of late, I believe there is more behind that statement than just an attempt to sell a book about how to accomplish such things.

Things To Ponder: Who Is Your CEO?

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Gene Takagi at the always enlightening Nonprofit Law Blog links to a two part entry on why the title of the senior leader of a non-profit should transition from Executive Director to President/CEO. The argument made in the pieces is that the person in that position gains credibility within and without of the organization.

Takagi only touches upon this very briefly because his greater concern is who is legally the CEO of the organization, the executive director or board chair. I voraciously consumed the post because I have dealt with organizations where the dynamics were such that one was clearly in a dominant position. I often wondered to whom people would look for leadership in a crisis–versus who was ultimately responsible for the decisions that were made during that time.

Takagi’s advice is-

“However, if the organization has a paid executive director who is tasked with operational leadership and the board chair is a volunteer who is not active in management of the organization’s operations, the CEO designation should be given to the executive director. Nonprofit boards should (1) review their bylaws to understand how their management structures have been established, and (2) amend them, as necessary.”

Acknowledging that the board chair may not want to give up the CEO title in this case, especially if said person is the organization’s founder or the board is very active, Takagi suggests the board seriously think about what is in the best interests of the organization. There are legal repercussions the nominal CEO may face.

It must not be overlooked that whoever has the CEO title may face increased exposure to liability for failure to meet his or her duties. Any CEO should be very familiar with the organization’s current financial position, programs, legal compliance issues, and overall strengths and weaknesses. Imagine a judge’s or jury’s reaction to a CEO who claims not to have reviewed the financials for several months or failed to take any steps to help ensure that the operations of the organization were compliant. Such reaction may be very different if it were the volunteer board chair’s liability that was being considered and the organization had a separate executive director designated as the CEO.

I did a quick read of other sources to see if Directors and Officers Insurance and Errors and Omissions Insurance would cover this sort of negligence and my results were inconclusive. Different insurance companies offer different coverages which contain different exclusions. Some seemed to imply this was the sort of thing you buy the insurance to guard against. Others said the insurance companies will look for any blatant omissions to use as a pretext to deny a claim.

Consolidating Back Office In Columbus

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I was listening to NPR this weekend and caught a story about Columbus Association for the Performing Arts CAPA, a Columbus, OH organization which area arts organizations have contracted to perform administrative functions.

About a year ago, I wrote about the excellent series the Non Profit Law blog did on the experiences non-profits have encountered merging their administrative functions.

Most of the examples used in that series were social service organizations so it was of some interest to hear a little about how arts organizations were entering the same arrangement. I wondered if it might become more prevalent in these tough economic times given that six Columbus area arts groups entered into arrangements with CAPA in the last year and a half. (This assumes there are businesses around the country who are able to offer these services. Not aware of too many in existence.)

I share a similar concern as Russell Willis Taylor quoted near the end of the piece. Relationships really matter when making the specific case for your organization in the community. Since CAPA seems to have varying scopes of responsibility with each client company, presumably an organization can reserve certain functions for itself and perhaps be involved with CAPA’s efforts on their behalf. But for a lot of artists and groups, the temptation to cede those functions to another so they can concentrate on creation of work alone may prove seductive. In the long run, their presence and public profile may wane as a group like CAPA’s waxes due to their adroit handling of so many responsibilities.

I don’t doubt that an arrangement with a group like CAPA can be extremely beneficial. Large for profit companies outsource their accounting, human resources, marketing, advertising and other functions all the time to great effect. But they also work very closely and stay very involved in every activity affecting the public image of their product because that is what is necessary.

As a little aside- I must confess that I had a moment of glee when I heard them describe the political cartoon implying CAPA is taking over. That anyone feels an arts organization is growing too powerful is so novel a concept, I can’t help but feel some joy. I mean, I don’t think I have heard anyone accused of that since the late 19th century with the Theatrical Syndicate. (Okay, I will grant you Clear Channel/Live Nation.)

Info You Can Use: Intern or Employee?

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A few weeks ago I did an entry on the social impacts and elements of internships in the arts and very briefly referred to the question of whether unpaid internships were legal.

It only occurred to me later that the whole legality question wasn’t really dealt with very well. I read a lot about it, but didn’t really pass the information along or give readers the sense of urgency to follow through.

Well, hat tip to the ever resource full Non-Profit Law Blog which linked to an entry on Blue Avocado which really tackles the question in much greater detail than the NY Times article I had linked to in my previous entry.

The federal criteria to which you must adhere according to Ellen Aldridge at Blue Avocado are:

1. The training, even though it includes actual operation of the facilities of the employer, is similar to what would be given in a vocational school or academic educational instruction.

2. The training is for the benefit of the trainees.

3. The trainees do not displace regular employees, but work under their close observation.

4. The employer that provides the training derives no immediate advantage from the activities of the trainees, and on occasion the employer’s operations may actually be impeded.

5. The trainees are not necessarily entitled to a job at the conclusion of the training period; and

6. The employer and the trainees understand that the trainees are not entitled to wages for the time spent in training.

You must meet all six or else pay minimum wage. Number 4 is probably the toughest to adhere to. The fact that non-profits can have volunteers adds another dimension to the whole question. You should really read the entry because I can’t get into all the nuances like laws dealing with stipends and the nature of functions being performed without reprinting the entire entry. There is, in fact, a significant difference between an intern and a volunteer, part of which determines the type of work each can perform.

At the end of the entry, Ellen Aldridge recommends two NY Times articles on the topic. The first is the one to which I linked in my previous entry. The second is the guidance the California Labor Department provided on the subject of unpaid internships.

The guidance really just supports the expectations an intern would have of their experience– something relevant to their career goals and not predominantly copying and filing.

In that situation, the agency suggested that payment was not required if an intern “performs culinary tasks directly pertinent to his or her education only, is closely supervised,” and “does not displace regular workers.” But, the agency said, if a restaurant required an intern to bus tables or wash dishes, that would probably be considered an employer-employee relationship and the intern would most likely have to be paid.

Mr. Balter cited another guidance letter that said film studios should pay college students who do routine work like delivering messages, filing tapes and clipping newspaper articles, partly because the work was so similar to that of regular employees and could displace such employees.

In the new guidance, the agency noted that it had previously concluded that interns should be paid if they did any work normally done by a regular worker.

But showing more leeway, Mr. Balter wrote that interns could do occasional work done by regular employees, as long as it “does not unreasonably replace or impede the education objective for the intern and effectively displace regular workers.”

This is only the interpretation in the state of California, and a recently altered one at that. Your state may differ so it will be prudent to see where things stand locally. It is promising that they take their lead from the 10th Circuit Court of Appeals which is considered more moderate than the 9th Circuit in whose jurisdiction California falls.

Board Stories (Plus Board Development Scholarship Info)

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I don’t often see blog entries on someone’s practical experience solving board related problems so I was pleased to follow a link on a Non Profit Law blog Tweets of the Week Entry to BoardSource’s Board Life Matters blog. There Melissa Sines talks about her experience on a board experiencing Battered Board Syndrome in the wake of the Executive Director’s unexpected departure.

She relates some very common problems her board faced:

“The relationship between board and staff had always been a rocky one in our organization. It was hard to ignore the finger-pointing taking place on both sides of the table. It was a classic case of management saying, “The board doesn’t fundraise enough, what good are they?” and the board saying, “The staff doesn’t listen to anything we say, anyway, what use are we?”

She credits a grant that allowed her board to engage in a year long training process covering myriad issues with saving the organization.

I haven’t had the opportunity to read the rest of the blog to see how useful it might be, but I couldn’t help but notice the most recent entry offering 20 scholarships to allow “emerging nonprofit leaders to participate in the annual BoardSource Leadership Forum to deepen their governance knowledge.”

This is the first scholarship I have heard with the aim of improving board governance so it bears attention. The criteria are:

* Are either
o nonprofit board members with less than three years of experience serving on a nonprofit board
o nonprofit executives or staff members with less than three years of experience working with a nonprofit board
* Have demonstrated leadership ability and potential for their organization and the nonprofit community
* Are affiliated with a nonprofit organization that has an annual budget less than $5 million
* Will enrich the diversity of the sector. Diversity includes but is not limited to age, race/ethnicity, sexual orientation, and disability.
* Would not otherwise be able to attend the BoardSource Leadership Forum and have not attended a previous Forum

Info You Can Use: Employee or Independent Contractor

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As usual, the folks at the Non-Profit Law Blog provide some useful links. I will quickly point out a short piece about the Senate has recently passing a jobs bill that will provide incentives to hire and keep employees.

The measure would exempt private employers, including nonprofit groups, from paying their share of Social Security taxes for employees they hire through the end of 2010. The new hires must have been out of work for at least 60 days.

They would get an additional $1,000 bonus if they kept the employee on the payroll for a full year

I had heard about this a few weeks ago, but it never occurred to me that this would be a real boon for the non-profit world where a little savings can go a long way. I wish I could remember where I heard it, but I was listening to a radio show where one of the panelists said he wished the money going to public works was directed to non-profits because you could create hundreds of non-profit jobs for every construction job created.

The main of what I wanted to discuss is examining the employment status of people who work for your organization. According to Jessica R. Lubar, a lawyer at Venable LLP, the IRS is undertaking a study of employment tax compliance. They will be focusing on three areas: worker classification, fringe benefits and officer compensation.

What I wanted to point out specifically was the issue of worker classification. I know of a number of organizations that call those who work for them independent contractors so that they don’t have to attend to any of the tax withholding details. However, if the IRS doesn’t call them the same thing you do, there could be a lot of trouble.

“A worker is considered an employee if the employer exercises the requisite amount of control over the employee under common-law principles. Over the years, the courts and the IRS have articulated certain factors that are considered in making that determination. The IRS organized the factors that are considered into three categories: (1) Behavioral Control – whether the business has a right to direct and control how the worker does the task for which the worker is hired; (2) Financial Control – whether the business has a right to control the business aspects of the worker’s job; and (3) Type of Relationship.”

If you have made a mistake in classifying an employee as an independent contractor, there is an opportunity to rectify that situation and obtain relief from the penalties of that mistake. Lubar outlines these in the entry. You would obviously want to consult a lawyer because I am already confused by the first of the three requisite criteria–not treating a person like an employee. That seems to me to imply you have been treating the person like an independent contractor which means you are in the clear.

Perhaps the distinction is in whether you contractually had the right to behavioral and financial control but never enforced it thereby treating someone as if they were an independent contractor when technically they were not.

Guess that is what the lawyers get paid to tell us.

BoardChemistry.com

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Boards seem to be a real hot topic recently. Thanks to a massive blogroll listing on the Clyde Fitch Report, I became aware of a ArtPride NJ blog post pondering why Gen X/Y is not well represented on non-profit boards. Leonard Jacobs of the Clyde Fitch report also weighed in on the subject of boards yesterday. (Busy day over at CFR, one hopes they didn’t spend all their time with the blog on Valentine’s Day.)

Hat Tip to Nonprofit Law Blog for pointing out a tweet to a Fast Company article about how for profit companies looking to provide their employees with a positive experience serving on non-profit boards can start a coaching/match making service.

I like the idea of taking the time to perform a diligent examination of your options, expectations of membership, mission and other details to assure your interest in the cause. I don’t see too many companies investing the resources to create such an office, especially in these economic times. I am wondering if this might be a task better suited to chambers of commerce or local chapters of the United Way. A centralized resource like this would be a benefit to a wider range of people and organizations than one limited to a few companies who are able to support the activities. And perhaps the central office could make an effort in concert with its members to encourage the Gen X/Y set to explore joining boards.

And if that works, maybe someone will work up a questionnaire and algorithm and make it an online service. Maybe I should go off and register BoardChemistry.com right now!

Bonus Link- Hat Tip again to Non-Profit Law blog who linked to the document the IRS uses to evaluate your non-profit during an audit.

Assorted Arts Candy

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Okay, some fun links from around the web today-

First off, you can have your big performing arts centers and arts organizations with multi-million dollar endowments and budgets, I would wake up happy every morning if I could say I worked here. (I wonder if they have 24 hour security to keep people from eating the building.)

Second, I wanted to point out an article on the always helpful Non-Profit Law Blog about common problems with organizational by laws. I passed the link on to an organization of which I am a member because we spotted some of the same issues with our bylaws and I figured there might be more still to examine.

The entry also includes potential problems when using another organization’s bylaws as a template for ones own.

Last, I wanted to direct people to an entry on Ken Davenport’s The Producer’s Perspective about a Hungarian immigrant who created a theatre ticket discounting organization in NYC that preceded the TKTS booth in Times Square by nearly a century.

Joseph Leblang received free tickets to shows in exchange for allowing posters to be put up in his shop. What he did was turn around and sold his tickets as well as those received by the neighboring shop owners for less than full price. The theatre owners weren’t happy but ended up turning their unsold stock over to Leblang because he did such a high volume business.

Davenport ends with an observation about keeping ones eye open for opportunity. There were many shopkeepers receiving tickets who could have started the same sort of endeavor but none did. Or at least none emerged to significantly challenge Leblang.

Stuff You Can Use: Board Ponderables and Resources

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There were a couple board related pieces I marked on the old Google reader I wanted to share.

First was an excerpt from a talk Gene Takagi of Non-Profit Law Blog recently gave for an American Bar Association seminar this month. The portion posted on the blog site deals with common governance problems boards engage in. The six points he makes deal with how boards misunderstand their role in the organization and the laws governing non-profit organizations.

Part of the third point caught my eye because it is a common practice but I have really never heard it discussed as a problem. (My bold emphasis.)

A lack of attention paid to the internal laws of the organization. Is the organization operating in furtherance of the exempt purpose stated in their governing documents? Do the directors really know, understand, and govern consistent with their bylaws and other governance policies? This problem often results when a board adopts bylaws that it copied from another organization without careful thought and consideration about how they work under different circumstances. It’s far too common for nonprofits to ignore membership requirements they’ve inadvertently created, elect a different number of directors than is authorized, and not maintain officer positions and/or committees required under the bylaws.

Not knowing where to start with bylaws, a lot of organizations use those of others as a template. I suspect that people choose to leave in elements that sound important and potentially useful when they really aren’t that important to the organization. I say this because a board I sit on tasked one of the vice presidents with a bylaws review and he essentially reported this very situation. The bylaws had originally been copied from a closely associated sister organization and there were portions that really did not apply to our activities. Advances in technology made other portions unnecessary.

To be fair, it is likely a group starting from scratch would include rules dealing with anticipated situations in their bylaws that proved to be extraneous. Time and experience is about the only thing that will reveal this to be the case which is why it is helpful to periodically review bylaws.

The other bit of information I wanted to draw attention to was a entry on The Nonprofiteer noting the availability of BoardSource videos on “the ten responsibilities of nonprofit Board members.” She also links back to her earlier entry on the Board Member’s Bill of Rights which bears reading.

Admittedly, the entry I link to is from February. I hadn’t the time to review the BoardSource videos until now. The video’s short, episodic structure make them faster to review than I thought. The way I see it though, many boards have likely taken a hiatus over the summer due to a lack of enough members to establish a quorum. This is probably an advantageous time for me to urge people to revisit the NonProfiteer’s entry to review the materials in preparation for an increase in board activity.

Merging Administrative Functions

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On occasion I cite consolidation of administrative functions as a method by which arts organizations in a community can cut costs by cooperating with one another. However, if pressed, I would have to admit that I wasn’t aware of any examples of such a thing working in practice.

So I was extremely pleased to see that the Nonprofit Law Blog has been running a series on this very subject. They cite four options that can be pursued, “an administrative collaboration, administrative consolidation, MSO (Management Service Organization), or external service provider.” The most recent entry gave an impression the series was finished but it hadn’t covered external service providers. If it does continue, I will post an update link here.

The first entry, Administrative Consolidations and Management Service Organizations covers those structures and outlines what situations they work best in.

The second entry, Joining Forces in the Back Office – Administrative Collaboration and Consolidation, talks about the collaboration and consolidation formats and presents some case studies. This is also the entry in which they define the different structures.

“According to La Piana Associates, Inc., an administrative collaboration is an informal, not necessarily enduring, arrangement to share services or expertise while each organization retains its individual decision-making power; an administrative consolidation is a more formal agreement that involves shared decision making (without changing the corporate structure) and the sharing of specific functions; an MSO is a newly created organization for the purpose of integrating administrative functions; and an external service providerinvolves the outsourcing of certain administrative elements.”

One thing I found interesting about the case study presenting in this entry was that the organization, Chattanooga Museums Collaboration achieved things you might expect- cut costs, leveraged their purchasing power, improved productivity and increased unearned income through joint fund raising activities. But the partnership also made them more competitive in the larger business landscape.

“Although the “immediate reaction is that it’s the smaller guys who are getting the benefit,” Kret corrects this misconception stating that through CMC, the Tennessee Aquarium benefits as well by generating revenue from typically nonrevenue places like accounting, increasing retention by offering key employees a higher level of compensation, and offering their employees a much more rewarding and challenging work environment.”

The third entry, Joining Forces in the Back Office – Management Service Organizations, contained a case study of an MSO formed by five social service organizations which now serves 13 groups. While MSOs are separate organizations formed to provide these services, unlike commercial payroll and human resource companies, MSOs are formed for the benefit of specific entities.

The MSO in the case study, MACC CommonWealth, has an auditor appointed by multiple boards. If that sounds like a recipe for disaster, you will want to read the case study which acknowledges that serving the interests of multiple boards and CEOs is potentially fraught with peril. So far, it seems to be working.

The most recent entry notes there are many successful collaborations among non-profits across the country. The main thrust of the entry are observations of why a cooperative effort funded by the The Lodestar Foundation, was unsuccessful.

The Lodestar Foundation provides grants for collaborative efforts and their website can give you a sense of the scope of the efforts being made in this direction.

Emily Chan who wrote the series on Nonprofit Law Blog cites a number of studies and books on the subject so the entries themselves provide a good starting place for exploring the possibilities offered by one of these avenues.

Stars of Google Reader

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I came across a number of interesting posts on blogs I follow on my Google Reader account and starred them for later review. Thought I would share a few…

Ken Davenport addresses some myths and rules to consider before investing in a Broadway show.

He also provides some interesting insight about wanting your first big project to be the Great American “X,” citing the examples (and advice) of Hal Prince and Stephen Spielberg.

Given the recent story about a mystery donor giving millions to different schools across the country with the provision the schools will not try to find out the donor(s) identity, the Non-Profit Law Blog entry about formulating a policy about what sort of donations you will and won’t accept seemed rather timely. Some recipients of this anonymous largess have checked with Homeland Security to ascertain the funds were obtained legally.

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