Should Your CEO Serve as a Board Member?

Blog-applesBy Jenifer Gager Holland, director of consulting, BoardSource

In December 2015, the Nonprofit Ethicist weighed in on the question of executive directors serving as board members of the nonprofits they lead. In short, the Nonprofit Ethicist didn’t like it.

And in fact, neither does BoardSource. However, there are some considerations to be explored to fully answer this question. First, it is possible for individuals to serve as board members with or without voting rights. A misconception persists in the field that “ex officio” (Latin: “from the office”) board positions always carry a vote with them. But in reality, ex officio board members may serve either with or without vote. BoardSource’s 2015 Leading with Intent report indicates that 50 percent of chief executives are not currently members of their boards, with 38 percent of our sample serving as ex officio, nonvoting members of the board. We also found that 12 percent of respondents include chief executives as voting members of the board, with this practice being more common among large organizations (21 percent of organizations with budgets of $10M or more).

In the case of nonprofit chief executives, BoardSource’s position is that they should be ex officio, nonvoting members of the board.

Taking each in turn, ex officio status makes sense for nonprofit chief executives because these professionals are closest to the strategy, execution, and day-to-day decision making around the work fulfilling the nonprofit’s mission. Hard-wiring the office of the chief executive as a board member via the organization’s bylaws is an intentional way to include uniquely meaningful input into board meeting deliberations that wouldn’t otherwise be available.

That said, BoardSource also recommends nonvoting status (BoardSource Leading Practice 7) for chief executives, unless not permitted by law. We embrace nonvoting status in recognition of the fact that actual or perceived conflicts of interest may naturally come along with the pairing of this position with board member status. The Nonprofit Ethicist cited one of these – the potential for inflated executive compensation – but in fact there are many such challenges that might arise. For example, this situation may blur the distinction between the board’s responsibilities and the chief executive’s responsibilities.

Not all nonprofits embrace our recommended leading practice of ex officio, nonvoting status for chief executives. The Leading with Intent data confirm that. However, even without this practice formally embraced, there are things that nonprofits can do to balance the need for chief executive input without triggering conflicts of interest. Whatever the chief executive’s official status, his or her insights into the daily operations of the organization are essential to board decision making.


Collecting Social Security Numbers from Donors

numbers-blogBy Anne Wallestad, president & CEO

A proposed change in IRS rules would require some nonprofits to collect their donors’ social security numbers. Because BoardSource believes this would have damaging impact on nonprofits, I submitted the following comment to the IRS in opposition to the proposal. My comment, as well as comments submitted by hundreds of other nonprofit leaders, can be viewed here.

As the president and CEO of BoardSource, the leading organization dedicated to strengthening nonprofit board leadership and governance, I am very concerned about this proposed regulation which invites nonprofit organizations to begin collecting social security numbers from their donors.

In a time where identity theft and data hacking present a real threat to all organizations and companies, nonprofit organizations should be actively discouraged from collecting social security numbers from donors, which opens both nonprofits and their donors up to unnecessary risks. Nonprofit organizations — the vast majority of which have budgets of less than $1,000,000 — are often not in a position to make expensive investments in data security measures, making them extremely attractive targets to potential hackers and very vulnerable to the damaged reputation and legal liability associated with a potential breach.

Furthermore, given growing concern within the public about fraudulent or unethical nonprofit fundraising activities, inviting nonprofit organizations to begin asking donors and potential donors for their social security numbers will undoubtedly raise concerns and skepticism from many potential donors, and make it easier for fraudulent or unethical entities to access highly sensitive donor information under the guise of legitimate fundraising practices. This will increase the risks of fraud and theft from donors and make it more difficult for organizations to raise the necessary funds to support their important missions, thereby harming both donors and organizations in real and irreparable ways.

The work of the nonprofit sector relies on our ability to earn and maintain the trust and confidence of our donors and those we serve. Let us not erode that trust by creating unnecessary and dangerous ambiguity about the appropriateness of collecting our donors’ social security numbers.




An Imperative for Nonprofit Boards: The Time is Now to Step Up Your Game

blog-BEACHBy Jean Case, CEO, Case Foundation

Over the years, I’ve had the great privilege of serving on a wide range of boards — from early stage startup companies to large, established nonprofits — and have observed firsthand the variety of hats we board members can wear. The role of board member compels us to be diligent in our roles as fiduciaries, but that’s just the beginning of our responsibilities. We also need to be champions of and networkers for the organizations we serve. And, particularly in a world where change is accelerating and disruption is becoming the norm, we also need to step up and challenge the organizations we care so much about.

Drop into the average board meeting as an observer and you’ll be quick to spot the fiduciary at work, or the helpful board member offering up valuable insights or supportive compliments. What might be harder to spot is the “fearless challenger” in the mix. And this is for a good reason: Quite commonly, board members view their role as “protector” of the organization, legally bound to ensure the longevity and solvency of their organization. For some, this mandate is a call to exercise an abundance of caution and focus on risk mitigation — in essence, do what they can to be sure bad things don’t happen. But, while of course that’s important, it’s incomplete. Today’s board members have to go further, and challenge the organization to be sure good things happen, too.

Earlier this year, BoardSource released Leading with Intent: A National Index of Nonprofit Board Practices 2015 in which chief executives and board chairs used BoardSource’s 10 basic responsibilities of nonprofit boards — including mission, financial oversight, and strategy — to assess their board’s performance. The result was a disappointing B- average, reflecting “responsible, but not necessarily exceptional, performance.” The Leading with Intent survey found that boards have a particularly difficult time adapting and adjusting to change, noting that “boards do well at functions related to compliance and oversight, but face challenges with their strategic and external work.”

Given the critical role boards play in influencing and guiding the work of social sector organizations, when it comes to performance, anything less than exceptional is simply unacceptable. Underpinning all of our fiduciary and legal responsibilities on the boards we serve is the need to help our organizations adapt, innovate, and…change.

We live in a world where the pace of change is unprecedented. It’s not just the old organizations that have to reinvent their ways of doing business to keep pace, even new and highly successful organizations such as Google, Facebook, and Amazon routinely adapt their structures, their practices, and even their workforce to stay relevant and ensure they are well poised for the future or adapting to new market opportunities as they emerge.

In the social sector, many of the organizations we serve are on the front lines of the world’s most pressing challenges where the “same old way of doing things” is simply not an option. As noted in the Leading with Intent report, this assessment should serve as a wake-up call for boards. If we want to move from a B- to an A+, we all have work to do. We must understand that while risk mitigation is important, it’s also important to push the organizations we serve to try new things, experiment, and challenge the status quo. Often for an organization to stay nimble, it needs to feel it has the backing of its board to take some risks and be bold. If we, as board members, don’t provide the requisite “air cover” to encourage risk taking, we are not really serving the organizations’ long-term interests.

Through time there have been many examples of organizations we can learn from that missed the mark on these fronts. Shouldn’t Kodak have brought us Instagram? Shouldn’t Blockbuster have brought us Netflix? Instead, they were utterly disrupted by these upstarts. These companies didn’t have their heads in the sand — they were aware of the upstart challenges — but they didn’t organize and prioritize to meet the challenge. They were taking what they thought was the safe route, and it turned out to be the risky route. They were stuck playing defense, when they needed to play offense.

If we are privileged to serve in board roles then we need to be bold enough to ask the hard questions and challenge the organizations we are there to support. In this period of great disruption and change, it is imperative that boards don’t just focus on the current operations, but also keep an eye toward the future — and make room for the necessary strategic conversations about the future.

How can these ideas be put into practice? Here are three specific suggestions:

  • Ask your CEO to highlight “threats and opportunities” as a routine part of board sessions, not just report out on current operations. On this point, remember that often everything is fine until it is not, so relying just on current operating activities without an eye on the broader landscape can represent its own “head in the sand” risk.
  • Make sure someone at the table is routinely asking, “How is the landscape around us changing, and are we adapting fast enough to meet these challenges and leverage new opportunities?” If you don’t have board members asking these questions already, you can “assign” this role to a given board member or members to ensure that the requisite conversation takes place. This “designated hitter” approach (often via a lead director) offers a safe and effective method to put on the table what some board members are really thinking or questioning, but often don’t feel comfortable to be the first to put forth. By openly “assigning” this role at the start of dialogue, a CEO can get the “unspoken” issues on the table.
  • Ask the CEO what she/he needs to ensure that the organization’s future can be ensured, and strengthened. As a board, be prepared to listen carefully to the answer to this question. All too often budgets are prepared under the assumption of what the board expects. What the board really needs to know is what the CEO really thinks the right path forward should be — not what the CEO thinks the board wants to hear, or might readily approve.

 By formally inviting an all-cards-on-the-table conversation, board members can be candid and honest in providing feedback, without worrying that their suggestions or critiques might be viewed as unsupportive. This kind of dialogue can help build trust and a sense that “we are all in this together,” which can go a long way to furthering the goals of the board and the organization.

Last year, I had the privilege of speaking at the BoardSource Leadership Forum about why we all need to Be Fearless in the social sector. I laid out the five key principles that typically are present when organizations or movements achieve transformative breakthroughs. The response was overwhelming, as I heard from many in the community afterwards about what they were already doing in line with the Be Fearless principles, or what they were inspired to do moving forward.

Since then, we have been working closely with practitioners in the field to improve our Be Fearless Framework for Action. We heard from many of you what worked and what didn’t, and as a result we’ve revamped the tools, to make them more useful — including adding more ways to assess your organization and identify opportunities for increasing your impact.

I invite you to check out the new Framework at — and hope you will let me know what you think about it so we can continue to improve it.

Being the fearless one in the room — especially the boardroom — is never easy, but it is necessary if we are going to fully support individuals and organizations that will create the transformative change the world needs. These ideas may seem foreign to some, given the traditional boardroom dynamics that are so commonplace, but they are grounded in real-world examples and best-in-class practices that yield results…results the world cannot wait for any longer.

Jean Case is CEO of the Case Foundation, and serves in a number of board roles, including the National Geographic Board of Trustees; Accelerate Brain Cancer Cure (ABC2); SnagFilms; BrainScope Company, Inc.; and the White House Historical Association. In addition, she is also a member of several advisory boards, including Georgetown University’s Beeck Center for Social Impact & Innovation; Harvard Business School’s Social Enterprise Initiative; and the Stanford Center on Philanthropy and Civil Society.

Boosting Nonprofit Board Performance Where It Counts: Onboarding the CEO

blog-welcomeBy Lisa Walsh, partner, The Bridgespan Group

This post is the last in a series written by leaders who will be presenting sessions at next week’s BoardSource Leadership Forum in New Orleans. We invite you to join us. 

The number one responsibility of any board — for-profit or nonprofit — is management of the senior executive. Dozens of governance books drive this point home. Yet, when we talk with nonprofit leaders, it’s simply not their experience. Nearly half (46 percent) of the 214 CEOs responding to a 2014 Bridgespan Group survey reported getting little or no help from their boards when first taking on the position. As one executive director put it, “The board essentially said, ‘We’re glad you’re here. Here are the keys. We’re tired.'”

Such comments were not the exception. Overall, survey respondents portrayed nonprofit boards as frequently disengaged or ill-equipped to effectively support their new leaders. Anecdotes and data tell the same story: When it comes to managing the senior executive, nonprofit boards underperform.This shortcoming is understandable given the nature of nonprofit boards. Board members are mostly volunteers. They are busy. They have other jobs. And according to a 2010 report by BoardSource, such individuals are typically brought on for their professional expertise and ability to represent constituents — not for their talent in managing people.

Yet onboarding matters tremendously, and many nonprofit boards regularly confront the challenge of bringing in a new leader from outside. A new Bridgespan survey on leadership development and succession planning polled 438 nonprofit executives, and found that more than one in four had left their job in the past two years. The same survey found that only 30 percent of senior executive openings were filled through internal promotions — about half the rate of the for-profit world.

When a lax onboarding process leaves the new executive struggling to succeed, the organization squanders a crucial learning opportunity and diminishes its effectiveness. Addressing this pitfall has to start long before the new executive arrives. It requires boards to adopt a leadership development mindset that links the board’s strategic vision to expectations for the new executive.

We’ve boiled down our findings into five recommendations that can boost a board’s performance where it counts the most: onboarding and supporting the new CEO.

  1. Lay the groundwork for the new leader. Helping a new leader succeed starts well before he or she is hired. The board needs to be clear about where the organization is headed before recruiting begins. Think three to five years down the road about potential growth, restructuring, new programs, or strategies. Taking stock of the organization also can help the board identify any tough choices that it might want to address before the new leader takes over.
  1. Collectively set the new leadership agenda. The foundation of the relationship between a board and its executive is a shared understanding of the organization’s goals and their roles in a plan to get there — what some call the leadership agenda. This agenda should clarify the organization’s priorities; develop action plans, roles, and milestones for each priority; and identify gaps in organizational ability or capacity to achieve them.
  1. Get clear on roles. Boards and new CEOs need to get clear about how they are going to work together. The more detailed a board can get with their new CEO about expectations, the less likelihood for pitfalls later. Adding a section to the leadership agenda that is explicit about working norms can be a powerful way to ensure that everyone is on the same page.
  1. Go slow in orientation to go fast on the job. The first few months on the job are the time for the new leader to listen and learn, forge relationships, and gain a sense of the organization’s strengths and weaknesses, challenges, and opportunities. To ensure that the new CEO has time and space for these activities, the board needs to make orientation a priority, and keep some day-to-day duties off the new leader’s plate at the outset.
  1. Make performance management routine. A critical component of the board’s role in managing the executive director is to establish clear performance expectations and a cadence for ongoing performance reviews to provide the new leader with the feedback and guidance needed to succeed. Setting these expectations early — before things go awry — lays the foundation for a healthy and clearly defined relationship between the board and the new executive.

Time and energy devoted to executive leadership transitions are a direct investment in advancing an organization’s mission. All boards have the capacity to ensure that their organizations hire and support strong leadership, and all should make it a priority. After all, it’s their most important job.

From “Good” to “Great” (or Better Yet, Impactful)

sussess-blogBy Julie Simpson, director of nonprofit strategy and capacity building, TCC Group, and Charles Gasper, senior consultant, evaluation practice, TCC Group

Does a “good board” really a strong organization make?

Fixing your board…that’s what many of us in leadership positions in the nonprofit sector believe it takes to improve our organizational impact. But how much does developing and educating your board really improve the way your organization does its work?

At TCC Group, we have spent years understanding the capacities a nonprofit needs to thrive. Our Core Capacity Assessment Tool (CCAT) helps an organization measure its leadership, adaptive, management, and technical capacities to prioritize what and how to improve its operations to really make a difference.

Partnering with BoardSource, we culled data from more than 4,000 nonprofits that have administered the CCAT, either once or more than once over the past decade to determine whether there is a direct link between improving a board and the overall ability of the nonprofit to effectively achieve its mission.

Using the CCAT as a tool that enables an organization to assess its board capacity and activity, TCC identified the key board capacities that have the strongest relationships with overall organizational capacity. In collaboration with BoardSource, we determined that “good boards” exhibit the following capacities:

  • Active outside engagement with the community
  • Good internal engagement with the staff
  • Involvement in strategic planning
  • Good staff/board relationships
  • Engagement in governance
  • Strong board vision of where the organization should go

However, we did not stop at the discovery that a relationship exists between board improvement and organizational strength; our intuitive hunches were confirmed in so many fascinating ways.

First, we have begun to trace, with mathematical certainty, the significant effect increased internal board engagement can have on a number of overall organizational capacities. As a result, not only can we prove a direct correlation between improving board performance and increasing organizational impact, but we also have demonstrated causality — where the degree of change in types of board behavior over time causes increased or decreased capacity on the part of the organization as a whole. This is especially apparent in the areas of organizational leadership and in determining a nonprofit’s ability to remain adaptive and flexible (the two most essential capacities when it comes to fundraising!).

Second, we explored the effect of moving certain board improvement levers. What happens when board capacity increases? What happens when it decreases? By comparatively testing whether certain types of board development affect organizations positively or negatively, we found that a nonprofit’s overall “technical” scores, (i.e., its existing systems and skills in the areas of leadership, adaptability, and organizational management) are boosted or diminished.

This means we can be deliberate in improving our boards in ways we know will give us the biggest “bang for our buck.” When considering investment in board education or development, we are able to examine the (statistically proven) ways that shortcut our journey to becoming a stronger organization!

Join us for our presentation at BLF 2015 to learn about how certain types of intentional professional development can actually move your board and, in turn, your organization from “good” to “impactful.”





Why It’s Critical to Pilot New Nonprofit Board Technology

Blog-CansBy Adam Roth, CEO, StreamLink Software

If your organization has a revolving door of tech solutions, with seemingly silver-bullet platforms cast aside after a few weeks or months, you’re not alone — and your problem may have nothing to do with software, and everything to do with your users!

A newly introduced technology will not succeed if user adoption is low. The more sophisticated the solution, or the degree of entrenchment in your organization’s processes, the more difficult adoption can be. Widespread rollout, when done hastily or without adequate communication and training, can lead to disaster.

Pilot programs, on the other hand, allow you to introduce new technology slowly and to a small number of users before you attempt large-scale implementation, and they can work well with nonprofit boards that are launching new board management software. Technology pilots allow board leaders to

  • identify implementation obstacles, process challenges, and onboarding issues in a controlled environment
  • outline processes as they relate to the new solution
  • document lessons learned to inform a full implementation and communication plan

Together, these benefits minimize chaos, prevent headaches, and pave the way for smooth user adoption. Most importantly, they ensure that the technology is configured and onboarded in a way that delivers on the board’s strategy and goals.

To pilot a new technology for your board, I recommend that you follow these five steps to gain early wins and more easily scale adoption:

  1. Visualize success before you begin. Quantify (or at least qualify) what successful adoption will look like. For many organizations, this can be articulated in time or resources saved.
  2. Identify the test group. Ask a board committee (perhaps your governance committee) to pilot the software. Ideal candidates are open-minded and communicative. Keep in mind that digitally savvy board members might excel in the pilot, but they won’t flag the training issues or adoption challenges of your tech-averse users.
  3. Communicate pilot parameters. Don’t set users loose on new technology. Clearly convey the pilot goals (once you’ve defined them) to all participants. Outline for which projects or processes the technology should be used, how to access resources, where to direct questions and what kinds of feedback should be relayed. This will give you the most useful data for widespread implementation.
  4. Create feedback channels. Identify an internal stakeholder to be the point of contact for all bugs, training questions, support issues, and feedback. Develop a system for documenting this information to relay back to board leadership and/or the technology partner.
  5. Address adoption concerns. Facilitate success by preparing for common doubts, for example, lack of time to learn a new tool or fear of being micro-managed. Address concerns head on through honest discussion about apprehensions and insecurities. Awareness of these feelings will help you better formulate a rollout plan, and learn how to mitigate future objections.
  6. Cultivate ownership. If the pilot is successful, recruit pilot program participants as product champions. Empower them with the opportunity to help with training or encourage the rest of the board toward adoption.

Most importantly, know and vet your solution before piloting begins. A thorough technology selection process, in addition to the pilot and rollout, contributes to successfully meeting the board’s strategy and goals.

The technology you choose for your board should be intuitive enough to become routine, flexible enough to complement legacy processes, and powerful enough to inspire action. Through a well-executed pilot program, board leaders can be sure new technology will deliver on all three.

In addition to sponsoring and exhibiting at the BoardSource Leadership Forum, the BoardMax team will be hosting a party at BLF on November 9th at 8:00 p.m. Join us!

Nonprofit Risk Management: What’s Inside Is What Counts

blog-elephantBy Ted Bilich, CEO, Risk Alternatives LLC

This post is one in a series written by leaders who are presenting sessions at the 2015 BoardSource Leadership Forum taking place on November 9 & 10 in New Orleans. We invite you to join us.

Should risk management for the nonprofit focus externally or internally? Although nonprofits often think of risk management as dealing with potential outside forces, the best risk management focuses first on what’s going on inside.

It’s understandable why many nonprofits believe risk management focuses mostly on what goes on outside the organization’s offices. Natural disasters loom, economic trends buffet, crooks and scam artists wile, hackers hack, donor and client demands press in. No doubt, effective risk management must account for outside threats and opportunities. The principal focus of effective risk management, however, is internal.

Why? Because internal threats predominate. Consider the following sobering facts:

  • Waste. Experts like Carlos Venegas (in his book Flow in the Office) estimate that up to 95 percent of activities in the average office add no value to the ultimate customer. Nor is this phenomenon new: nearly 40 years ago, management expert Peter Drucker had reached the same conclusion.
  • Disputes. Six out of ten employers have faced an employee lawsuit during the past five years; in other words, internal dispute spill outward to the courts.
  • Fraud. Similarly, smaller organizations (including nonprofits) face a greater threat from internal frauds like embezzlement than larger firms.

Those examples are only the beginning. Even for the best nonprofits, most threats are within the organization itself.

That conclusion, however, is no cause for dismay. To the contrary, if problems are internal, solutions and opportunities for improvement are usually also within the organization’s control. Thus, effective risk management does not contend chiefly with Shakespeare’s “slings and arrows of outrageous fortune.” Instead, risk management develops processes that reduce waste, uncertainty, and unforced errors.

Build a Better Organization

When helping nonprofits create risk management programs, it is useful to draw upon continuous process improvement tools popularized by the “Lean Management” movement. Lean Management preaches that even the best organization generates substantial waste, which it systematically identifies and eliminates. Risk management practitioners agree. In fact, many of the basic principles of Lean Management inform effective risk management:

  1. Emphasize a culture of improvement. Lean Management advocates empowering team members to identify threats and opportunities, admit mistakes, and challenge established practices. Risk management similarly emphasizes a continuous cycle. Risk management is not a once and for all event. It is a process.
  2. Make processes visible, so that waste can be identified and addressed. Lean Management emphasizes that if you don’t know all the steps in a process, you can’t tell whether a change would be for the better. Risk management likewise emphasizes performing a risk inventory, to increase awareness of threats and opportunities across all functional areas of the nonprofit.
  3. Make it measurable. Lean Management preaches adopting metrics to measure the effectiveness of each process. Correspondingly, risk management emphasizes accountability: Key performance indicators and key risk indicators should be used to measure whether the nonprofit is performing within acceptable ranges.
  4. For each process, make it repeatable, scalable, and optimized. Lean practitioners maintain that if a process is performed differently each time, it’s not a “process” at all. Likewise, risk management emphasizes that clear processes and procedures permit frontline personnel to take ownership of issues without smothering supervision, freeing senior personnel for other efforts.
  5. Reduce complexity. Once core processes are identified, the Lean practitioner tries to reduce them to their essentials, so that team members can perform each process easily and effectively. In the same way, risk management suggests simplification to reduce errors and waste.
  6. Make changes incrementally. Lean Management has a bias in favor of action. Rather than trying to change an entire process at once, Lean practitioners prefer small actionable steps that can be tested along the way. Risk management similarly emphasizes a cycle: Identify threats and opportunities, take steps to deal with them, assess the results, then repeat that process.
  7. Focus on problem solving. Under Lean Management, problems are not ignored, but rather welcomed as opportunities for change and improvement. In the same manner, risk management emphasizes awareness and activity, and seeks to develop learning organizations in which people have the humility to identify and address personal and organizational challenges.

In short, the best risk management programs start first with what’s inside — what’s within a nonprofit’s control. By emphasizing and focusing internal threats and opportunities, an effective risk management program can help leadership create a more nimble, resilient organization. Armed with that resilience, the nonprofit is better prepared to thrive in an unpredictable business context, maximize stakeholder value, and ensure delivery of essential services and programs for years to come.

Stand for Your Mission While Staying Within the Rules

Blog-RulesBy Katari Buck, member, Asiatico & Associates, PLLC

This post is one in a series written by leaders who are presenting sessions at the 2015 BoardSource Leadership Forum taking place on November 9 & 10 in New Orleans. We invite you to join us.

Advocacy is an essential responsibility of a nonprofit board. So much so that BoardSource has released a new edition of Ten Basic Responsibilities of Nonprofit Boards to include this concept. Advocacy necessarily means educating and informing policy makers of your organization’s mission and what you need to accomplish it. But where does advocacy end and prohibited political activity begin?

We must distinguish between issues advocacy, which 501(c)(3)[i] organizations can and should do within the rules, and political campaign intervention, which is prohibited. It’s clear that a 501(c)(3) nonprofit cannot directly or indirectly support or oppose a candidate for elective public office in a political campaign. And it’s equally clear that lobbying — attempting to persuade a member of a legislative body to support or oppose specific legislation — is allowed as long as it is not a substantial part of your organization’s activities.

But what if a candidate is running for public office and supports your nonprofit’s mission? Is it okay to invite the candidate to speak at a fundraising event to help your organization raise money to further that mission, even if it is not an official campaign activity? The answer is maybe. If the candidate speaks as an expert regarding an issue of importance to an organization with no mention of his or her candidacy before or during the event, and there is no campaign activity in connection with the candidate’s attendance, the appearance is probably allowed by IRS regulations. However, if the same appearance takes place one week before a hotly contested and well-publicized election, and one of the disputed campaign issues is the focus of the candidate’s speech, the IRS will probably determine the candidate’s appearance is prohibited political campaign activity.

501(c)(3) organizations also may want to advocate for issues during election season when the positions of the candidates for election do not all align with their policy position. In this case, it is very tempting to endorse a particular candidate’s position or attempt to persuade others to vote for a candidate whose position is aligned with that of the organization. The IRS has published key factors nonprofits should consider when communicating about such an issue:

  • Whether the communication identifies one or more candidates for a given public office
  • Whether the communication expresses approval or disapproval for one or more candidates’ positions or actions
  • Whether the communication is delivered close in time to the election
  • Whether the communication makes reference to voting or an election
  • Whether the issue addressed in the communication has been raised as an issue distinguishing candidates for a given office
  • Whether the communication is part of an ongoing series of communications by the organization on the same issue that are made independent of the timing of any election
  • Whether the timing of the communication and identification of the candidate are related to a non-electoral event such as a scheduled vote on specific legislation by an officeholder who also happens to be a candidate for public office.[1]

It’s not hard for a 501(c)(3) nonprofit to innocently run afoul of IRS rules on political campaign activity. Thoughtful planning is necessary to ensure you can stand for your mission and stay within the rules, but doing so is possible. There are many scenarios not covered by this post, so I encourage you to consult with an attorney with experience in this area before engaging in an activity that may implicate these rules.

[1] IRS Rev. Rul. 2007-41 (June 18, 2007)

[i] This post does not address political activity by 501(c)(4) or other 501(c) organizations.

Nonprofit Scandals and the Lessons Learned

scandalblogBy Erin Bradrick, senior counsel, NEO Law Group

This post is one in a series written by board leaders who are presenting sessions at the 2015 BoardSource Leadership Forum taking place on November 9 & 10 in New Orleans. We invite you to join us.

It’s no secret that most people are drawn to the details of a juicy scandal and that, as a result, news outlets are quick to jump on any story that implies wrongdoing. Unfortunately, the nonprofit sector is not immune to this phenomenon, and we frequently hear stories of nonprofit governance gone wrong. Although such stories may represent the happenings of only a tiny fraction of nonprofits, they often impact the perception and, occasionally, the regulation, of the entire sector. As the board member of a nonprofit, it can be a valuable exercise to consider the lessons that can be learned from recent newsworthy scandals and to apply those lessons to strengthen the governance practices at your own organization.

Reports of seemingly excessive executive compensation at nonprofits appear to top the list of news stories on nonprofit scandals. Although we are in the midst of a national conversation regarding nonprofit employee compensation and the appropriate level of nonprofit “overhead” spending, many people still apparently find it incongruous for a nonprofit to pay compensation that is competitive with the for-profit sector, and stories of high compensation routinely make the news. For example, news stories popped up last year reporting that the then chief executive of the Queens Borough Public Library, a 501(c)(3) public charity, was receiving compensation of almost $400,000, as well as a set budget for the car of his choice to be replaced every three years, while the organization had simultaneously eliminated nearly 130 jobs over the previous five years. Although the shock value of this is high, from a legal perspective, how can a board ensure that the compensation it pays its executives is reasonable and permissible for the organization?

Organizations that are exempt under Section 501(c)(3) generally must ensure that the compensation they pay to employees is fair and reasonable in light of the services the organization receives in return, and must ensure that they do not provide a prohibited private benefit to any individual. Additional rules, referred to as the excess benefit transaction rules, specifically prohibit such organizations from providing an excess benefit to certain disqualified persons, defined in part as anyone in a position to exercise substantial influence over the affairs of the organization in the five years preceding the transaction, such as a board member or high-ranking employee. If an excess benefit transaction is entered into, the disqualified person receiving the benefit and the board members who knowingly approved the transaction can be subject to significant taxes on the excess amount.

However, there are steps that a board may follow, called the rebuttable presumption of reasonableness procedures, to help protect the organization from a challenge asserting that compensation it provided was excessive. The rebuttable presumption of reasonableness procedures consist of three steps: (1) the compensation arrangement must be approved in advance by the board or an authorized committee; (2) the board or committee must have obtained and relied upon appropriate data as to comparability (i.e., comparable compensation amounts paid by similarly situated organizations for employees in similar positions or an appropriate compensation study) prior to making its determination; and (3) the board or committee must have documented the basis for its determination concurrently with making that determination. If these steps are followed, it establishes a presumption that the compensation was reasonable and the burden shifts to the IRS to demonstrate that the compensation was in fact excessive.

Going back to our scandal, the Queens Library reported revenue of $109 million and net assets of nearly $50 million on its most recently available Form 990 filed with the IRS. For an organization of this size, it may not have been difficult for the board to find and rely upon appropriate comparability data, and the same Form 990 reports that an independent compensation study was used to benchmark the chief executive’s compensation to current market comparability data. Accordingly, it may not be that the chief executive’s compensation alone constituted an excess benefit transaction from a legal perspective.

Unfortunately, however, there was more to the story. An audit and investigation of the organization by the New York comptroller found that the chief executive and the former chief operating officer had used their organizational credit cards to incur more than $310,000 in prohibited expenses (such as for Maroon 5 concert tickets, Apple televisions, and tickets to Disneyland), including significant amounts that appeared to be taxable, undeclared income. Although the Queens Library had a credit card policy in place that prohibited the use of organizational credit cards for personal charges, there was apparently no one approving the expenses charged to the cards by the top employees. Moreover, the comptroller found that there were numerous seemingly inappropriate purchases on the credit cards that apparently occurred while board members were present, including significant charges at restaurants following board meetings at which food had already been provided. The Queens Library reported in its most recently available Form 990 that eight of its board members were removed from the board last year and that it was continuing to determine the precise amount of the excess benefits received by the chief executive, for which it would be seeking reimbursement from him.

The lessons to be learned from this scandal are multifold. In addition to the legal aspects of the excess benefit transaction rules and the rebuttable presumption of reasonableness procedures, board members may also need to consider the optics and potential public relations ramifications of any compensation package. Moreover, while adopting strong governance policies is an advisable best practice, policies only serve their purpose if they are abided by and enforced. Finally, a board member’s fiduciary duties to a nonprofit include the duty to ensure the financial health of the organization, and board members should not only refrain from participating in inappropriate organizational expenditures, but should also actively investigate any indication of inappropriate activity at the organization.

For more on recent nonprofit scandals and the legal lessons that board members can learn from them, join me for a fun and interactive session at BLF 2015.

Taking a Principled Approach to Ethical Challenges & Questions

valuesblogBy Kendall Joyner, director of programs and practice, and Amanda Broun, vice president of programs and practice, Independent Sector

This post is one in a series written by leaders who are presenting sessions at the 2015 BoardSource Leadership Forum taking place on November 9 & 10 in New Orleans. We invite you to join us.

“I’m not sure whether our chief executive is being transparent with the board and ensuring that appropriate organizational issues are brought to the board’s attention. What should I do?”

“I think that one of my fellow board members has a conflict of interest that she’s not disclosing. Should I bring this issue to the board?”

“If a member of my board brings in a donor or mailing list from another organization, how should I handle that?”

Board members wrestle with ethical questions like these all the time, on issues ranging from transparency and managing the relationship with the chief executive to conflicts of interest and data privacy and protection. At this year’s BoardSource Leadership Forum, we’re excited to dive into your ethical challenges and questions, as we share highlights and updates from Independent Sector’s Principles for Good Governance and Ethical Practice.

The Principles, first published in 2007 and updated in 2015, outline 33 principles of sound practice for charitable organizations and foundations. They provide a framework that senior management and board members can use to strengthen effectiveness and accountability within their organization. One section of the guide focuses on effective governance, and others cover legal compliance and public disclosure, financial oversight, and responsible fundraising.

One area that we considered in depth when updating the Principles was risk tolerance and mitigation in response to technology advances — including issues of data security and privacy. The question posed above related to sharing donor lists touches on a few principles that were updated to reflect the current climate in which charitable organizations operate.

Our Principle 6 (Protection of Assets) states that a charitable organization’s board should ensure that the organization has adequate plans to protect its assets against damage and loss. This includes the extensive data that many charitable organizations now collect regarding donors, employees, volunteers, clients, and consumers. Organizations have a duty to let individuals know what information is being collected, how it will be used and protected, and how to inform the organization if the individual does not want their data to be shared.

Additionally, according to Principle 33, charitable organizations must respect the privacy of individual donors, and should not sell or otherwise make available the names and contact information of its donors without providing them an opportunity to opt out. Principle 33 also asserts that donor information is the proprietary information of the organization — not of individual fundraisers — and that this information cannot be shared without clear permission of both the donor and the organization. Similar to Principle 6, Principle 33 recommends that organizations have an online privacy policy, provide clear “opt out” procedures, and immediately honor a donor’s request to be removed from mailing lists.

When presented with a dilemma about shared donor or mailing lists, board members may want to ask how the information was collected, whether donors gave consent for their information to be shared, and whether the originating organization had appropriate controls in place to protect the data.

This example just skims the surface of the indispensable guidance included in the Principles. Visit to learn more or click here to download a free PDF version of the guide. We look forward to hearing your ethical questions and exploring how the principles can provide guidance during our session, “Ethics and Accountability: From the Mailroom to the Boardroom” during the 2015 BoardSource Leadership Forum.




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