The role of the audit committee – we will discuss the audit committee, what its purpose is, who should be on the audit committee, what the audit committee should be focusing on, what should be discussed at each meeting, etc. This is more of an overview that feeds into the second and third meetings.
Let’s start with this basic premise: people join nonprofit boards because of their passion for the mission. No one joins a nonprofit board to spend time and energy on nonprofit governance. Nobody wants to become a governance geek! Because of this basic mindset, nonprofit directors and officers are often surprised when they discover that the only way to protect the organization, its mission and its assets, the only way to fulfill their fiduciary duties under the law, and the only way to protect themselves from personal liability for breach of these fiduciary duties is careful and continuous attention to governance. Bottom line: as a director or officer of a nonprofit you have no choice but to become a governance geek, both for the good of the organization and for your own good.
To make matters worse, New York nonprofit law is chock full of requirements, some of them quite demanding, and some of them somewhat counterintuitive. There are no shortcuts to evade these legal requirements, and the only way to comply is to keep governance in the spotlight and to implement governance requirements and procedures with careful attention to detail. Here are some governance requirements that every nonprofit should be sure to follow.
Have An Annual Meeting. New York law requires every nonprofit to have an annual meeting. There are two requirements at the annual meeting: the election of directors and the delivery of the annual financial report. The election of directors is fundamental to nonprofit governance. As one might imagine, deficient or improper election of directors calls into question the board’s composition and authority, and can, in turn, undermine the validity of board decisions and actions, with far-reaching negative consequences. The law mandates that certain information be included in the annual financial report. This is set forth in Sections 513 and 519 of the Not-for-Profit Corporation Law. But the mandated financial information is not the end of it. It is often the timeliness requirement for the annual financial report that trips up nonprofits, and this is most certainly a trap for the unwary. The law requires that the financial information provided covers a twelve-month fiscal period ending not more than six months prior to the date of the annual meeting. So, if your fiscal year ends December 31, your annual report would need to be delivered before the end of June. Delivery of a complete, compliant and timely annual financial report is an essential component of New York nonprofit law’s model of financial reporting, transparency and governance.
New York Law Does Not Permit Email Voting. Let me repeat that, because it is such a source of confusion for directors and officers. New York law does NOT permit email voting! The board can act in two ways under New York law. One option is action at a meeting (including in-person, phone conference or video conference – depending on what your bylaws provide). The other option is unanimous consent in lieu of a meeting (this can be unanimous written consent or unanimous email consent, again depending on what your bylaws provide). But the key is that if the board is going to consent without a meeting, the consent must be unanimous. 19 out of 20 directors consenting is not sufficient. I had this very fact pattern occur with the board of a national organization with 50 directors. 49 directors consented by email. One director did not consent because he was in a coma. The 49 consents were useless (because there was not unanimous consent, and because email voting is not permitted), so the board needed to call a special meeting to take the intended action. These distinctions are anything but insignificant technicalities, because if the consent is not valid, the result is that the action is not authorized, and unauthorized actions can lead to all sorts of entanglements and potential liability, including personal liability for directors.
The law has mandatory requirements in the areas of meeting notice, quorum and voting thresholds. Very often, bylaws are written in a way that violates these mandatory requirements. So, you could be scrupulously following your bylaws, but nonetheless be violating the law. Here too, violations are not harmless technical infractions. Deficiencies in the areas of meeting notice, quorum and voting thresholds can lead to challenges to both the validity of meetings and the authority for the actions that were taken at those meetings, with potential personal liability of directors as an unfortunate consequence.
Committees are another area full of traps for the unwary. There are two types of committees permitted under the law: board committees and committees of the corporation. Each board committee must have at least 3 directors. Non-directors cannot be voting members of board committees. Board committees can possess certain aspects of board authority, which are formally delegated to the committee by the full board. But there are certain aspects of board authority and functioning that the law does not allow to be delegated to a committee. And there are specific statutory provisions that apply to, and govern, certain board committees (principally, the Executive Committee and the Audit Committee). Committees of the corporation, on the other hand, cannot be delegated any board authority, and cannot bind the corporation. Committees of the corporation can play a strictly advisory role. As a result of this more limited role, non-board members (as well as board members) may serve on committees of the corporation, and there is no minimum number of members for a committee of the corporation. In the area of committees, too, missteps can have serious consequences, and can lead to the undermining of decisions and actions, and potential personal liability of directors.
Nothing listed above is rocket science. So then, why do we see governance deficiencies in these areas cited over and over in regulatory actions against nonprofit directors and officers, and also in litigations by private litigants against nonprofit directors and officers? Careful attention to detail can eliminate these exposures before they happen. “An ounce of prevention is worth a pound of cure!” Nonprofits owe nothing less to the organization and its mission, to those that they serve, and to the directors and officers whose service is so vital to the advancement of the organization’s good and essential work.
About the Author
David Goldstein is the founding partner of the Nonprofit/Tax Exempt/Religious Organizations Practice Group at Certilman Balin Adler & Hyman, LLP. He is the Chair of the Not‑For‑Profit Corporations Law Committee of the New York State Bar Association’s Business Law Section. Mr. Goldstein represents a broad range of international, national, regional and local not-for-profit entities across a wide variety of nonprofit sectors. You can reach David at firstname.lastname@example.org or (516) 296-7811.
The information contained in this edition of Nonprofit Legal Currents has been prepared by Certilman Balin Adler & Hyman, LLP for general informational purposes only and is not intended and should not be considered to be legal advice or a legal opinion. Readers should seek the advice of legal counsel on any specific matter. Transmission or receipt of this edition of Nonprofit Legal Currents does not constitute nor create an attorney-client relationship. Please note that we do not undertake to update this edition of Nonprofit Legal Currents after its publication to reflect subsequent developments.
Are you a nonprofit looking for new board members? An individual seeking a position on a board? This March BoardStrong (formerly Governance Matters) is launching a powerful website – a comprehensive board building solution that provides board recruitment and education, and board development services. The heart of the new site is a digital board education and matching site that enables individuals and nonprofits to search for each other. The site will go live on March 1st, and BoardStrong welcomes all to sign up and explore. Organizations and individuals who were signed up on BoardStrong’s older sites – charitySTRONG and boardnetUSA will find that they already have profiles in the new site. They need to register with the same email they signed up for to access their information. BoardStrong also offers high-touch, personalized board placements, and a team of expert board trainers and facilitators all brought together under the new BoardStrong brand. Learn more at boardstrong.org.
James McTighe and Anthony Mazza of Lee, Nolan & Koroghlian, LLC
Topics to include:
• Disability Income Insurance planning for individuals and business owners
• Life Insurance Funded Non-qualified Executive Bonus Plans
• Split Dollar Plan
• Non-qualified deferred compensation plan
• Plan design and legal and tax characteristics
Joshua Peskay from Roundtable Technology will Cover:
• What are the characteristics of high functioning IT?
• How can high functioning IT transform your organization?
• How can you assess your current level of IT?
• What is the return-on-investment for IT spending?
David Goldstein will be discussing:
-Fiduciary Duties Of Board Members And Officers Under New York Law
-Potential Personal Liability Of Board Members And Officers For Breach Of Duty
-A Roadmap For Governance Compliance
-Traps For The Unwary, Enforcement Actions And Litigation
When The Liincs Organization (liincs.org) originally formed in 2013 its mission was to create a forum for young professionals to organize in order to maximize their economic, social and governmental impact in the region. It has since morphed into an association to help Long Islanders looking to launch a career or become leaders within their respective communities. Its new mission is to cultivate a platform for Long Islanders looking to better their community and careers through connections, professional development, civic engagement, and social impact.“Establishing roots in a community while launching a career can be challenging, especially so on Long Island,” Liincs founder and executive director Michael Watt said. “Thanks to advances in technology and broadband, smart, hard-working people can live wherever they want and they want to live in regions that rank high in matters pertaining to quality-of-life. In that regard Long Island brings a great deal to the table.” “Liincs” is short for “Long Island Incorporateds,” Watt explained. “Anyone born after 1980 ‘owns’ their careers much more so than previous generations. As a result, Liincs members bring an entrepreneurial mindset to their personal- and career-related challenges. It’s all about solving problems efficiently and effectively. The resources are already there. It’s Liincs job to connect the people to those resources.” Among other accomplishments, TLO spearheaded the creation of the Millennial Leadership Coalition (liincs.org/mlc), which is comprised of the leaders of the two-dozen-plus young professional-oriented groups and chapters currently functioning in Nassau and Suffolk counties. Together, the TLO and MLC organizations are planning an event entitled “Elected Millennials and You.” It was originally scheduled for 2020 but has been moved to Fall 2021 because of the pandemic. It will be a panel discussion featuring elected officials who qualify as millennials, moderated by a millennial in front of an audience of millennials. This is the first time such an event has been planned on Long Island. Perhaps the most enticing – and encouraging – aspect of both the event and the groups planning it is the diversity of the young Long Islanders involved. This occurred organically and accurately reflects Long Island’s changing demographics. LiiNCS is a Long Island-based 501c3 nonprofit association committed to improving local communities through personal and professional development. The Liincs Organization shares a commitment to cultivating an environment that encourages action in leadership, social awareness, and civic engagement in areas affecting the future of our community.
Helping Nonprofit Organizations Rediscover Their Purpose So They Can Secure Their Futures.
WRITTEN BY: Cory Rosenberg Chief CRee8tive Officer CRee8/Fivestar Advertising
According to the National Center for Charitable Statistics (NCCS), more than 1.5 million nonproﬁt organizations are registered in the U.S. This number includes public charities, private foundations, and other types of nonproﬁt organizations, including chambers of commerce, fraternal organizations and civic leagues.
The reality is that all of these well-intentioned Nonproﬁt Organizations (NPOs) are out there relying on all the same government funds and/or third-party donors such as foundations, corporate sponsors, wealthy individuals and the general public to support them. Each year brings with it new challenges for Executive Directors, Finance Committees, and ultimately the Board of Directors, as they negotiate through the economic ebbs and ﬂows of our country. Like many industries, the pandemic has brought with it a whole new set of challenges and has even brought some historically stable organizations to their knees.
So what is a NPO to do to ensure it actually has a future?
The fact is, most of the answers lie within the organization’s original mission statement. What did the founder of the organization want to accomplish by creating the organization? What problem did he or she intend to solve? Is that problem still a problem, or does the organization need to pivot to address new issues?
At CRee8/Fivestar we have helped numerous NPOs reconnect their internal operations, and corporate cultures, to the intentions of their founders. We help remind everyone involved why they do what they do, and why their contributions are so critical. We help employees feel a sense of purpose as they embrace the responsibility of carrying the torch and protecting the legacy of their founder’s original mission.
“We all know that money doesn’t grow on trees, but we also know that cultivating great relationships is paramount for NPOs.”
By doing this, processes are reworked, products and services are improved. Everyone in the organization becomes synchronized and clear on the mission and message they need to convey each day. This uniﬁed brand voice helps the marketing team tell more concise stories. This helps attract more business and improves engagement with the donating public. Clearer stories also improve conversion ratios (e.g. turning a “follower” into a “donor”) – the key to success in today’s noisy digital world.
NPOs frequently struggle with marketing because they often rely on interns, volunteers, freelancers and less- experienced staﬀ to develop and orchestrate their marketing plans. As a result, the marketing plans themselves lack the necessary depth to ensure that budgets are robust enough and the right strategies and tactics are being properly implemented to ensure eﬀectiveness. The words “we can’t aﬀord to do that” are frequently heard in the conference rooms of many NPOs, and it is this “scarcity mentality” that ultimately impedes growth. You see marketing done eﬀectively is not an expense, but a revenue generator. The reality is that ﬁnding a media eﬃciency ratio (Media Spend vs ROI) that works for your organization takes some time (and money). However, if your marketing team has been at it for a while, has accumulated a lot of data, has eﬀectively tested diﬀerent creative executions and strategies, and is still spending more money than it makes, then there’s a problem, a real problem. Most likely, that problem is that your organization’s corporate culture is weak, your employees still don’t know why the founder felt a need to start the organization in the ﬁrst place and your marketing team doesn’t have a clear and focused story to tell.
We all know that money doesn’t grow on trees, but we also know that cultivating great relationships is paramount for NPOs. While building great donor relationships can take time, they can certainly be fertilized with clear and focused storytelling. If your marketing messaging can remind people why your organization exists, and why it matters, everyday, then you’ll succeed. Consistency of messaging, a constant ﬂow of success stories that demonstrate your organization’s
uniqueness, value, and authenticity will attract people and ensure your NPOs long-term success.
Again, what you do every day matters. Tell the world why!
If your NPO needs help reconnecting to its mission and/or telling its story, reach out to Cory Rosenberg or Noel Raab at 631-420-1112 or by email at Info@FivestarAdvertising.com.