«November 19, 2014 Venable LLP Washington, DC Moderator: Jeffrey S. Tenenbaum, Esq., Venable LLP Panelists: George E. Constantine, III, Esq., Venable ...»
Enhancing the Nonprofit Governance
Model: Legal Pitfalls and Best Practices
November 19, 2014
Jeffrey S. Tenenbaum, Esq., Venable LLP
George E. Constantine, III, Esq., Venable LLP
Michael F. Curtin, Jr., DC Central Kitchen
© 2014 Venable LLP
Enhancing the Nonprofit Governance Model:
Legal Pitfalls and Best Practices
Wednesday, November 19, 2014, 12:30 p.m. – 2:00 p.m. ET Venable LLP, Washington, DC Moderator Panelists Jeffrey S. Tenenbaum, Esq., Venable LLP George E. Constantine, Esq. Venable LLP Michael F. Curtin, Jr., DC Central Kitchen © 2014 Venable LLP CAE Credit Information *Please note that CAE credit is only available to registered participants of the live program.
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HONORSRecognized as "Leading Lawyer" in Legal 500, Not-For-Profit, 2012-14 Listed in The Best Lawyers in America for Non-Profit/Charities Law, Washington, DC (Woodward/White, Inc.), 2012-15 Selected for inclusion in Washington DC Super Lawyers, Nonprofit Organizations, 2014 Served as member of the selection panel for the inaugural CEO Update Association Leadership Awards, 2014 Recognized as a Top Rated Lawyer in Taxation Law in The American Lawyer and Corporate Counsel, 2013 Washington DC's Legal Elite, SmartCEO Magazine, 2011 Fellow, Bar Association of the District of Columbia, 2008-09 Recipient, American Bar Association Outstanding Nonprofit Lawyer of the Year Award, 2006 Recipient, Washington Business Journal Top Washington Lawyers Award, 2004 Recipient, The Center for Association Leadership Chairman's Award, 2004 Recipient, Greater Washington Society of Association Executives Chairman's Award, Legal Section Manager / Government Affairs Issues Analyst, American Society of Association Executives, 1993-95 AV® Peer-Review Rated by Martindale-Hubbell Listed in Who's Who in American Law and Who's Who in America, 2005-present editions
ACTIVITIESMr. Tenenbaum is an active participant in the nonprofit community who currently serves on the Editorial Advisory Board of the American Society of Association Executives' Association Law & Policy legal journal, the Advisory Panel of Wiley/JosseyBass’ Nonprofit Business Advisor newsletter, and the ASAE Public Policy Committee.
He previously served as Chairman of the AL&P Editorial Advisory Board and has served on the ASAE Legal Section Council, the ASAE Association Management Company Accreditation Commission, the GWSAE Foundation Board of Trustees, the GWSAE Government and Public Affairs Advisory Council, the Federal City Club Foundation Board of Directors, and the Editorial Advisory Board of Aspen's Nonprofit Tax & Financial Strategies newsletter.
PUBLICATIONSMr. Tenenbaum is the author of the book, Association Tax Compliance Guide, now in its second edition, published by the American Society of Association Executives. He also is a contributor to numerous ASAE books, including Professional Practices in Association Management, Association Law Compendium, The Power of Partnership, Essentials of the Profession Learning System, Generating and Managing Nondues Revenue in Associations, and several Information Background Kits. In addition, he is a contributor to Exposed: A Legal Field Guide for Nonprofit Executives, published by the Nonprofit Risk Management Center. Mr. Tenenbaum is a frequent author on nonprofit legal topics, having written or co-written more than 700 articles.
SPEAKING ENGAGEMENTSMr. Tenenbaum is a frequent lecturer on nonprofit legal topics, having delivered over 700 speaking presentations. He served on the faculty of the ASAE Virtual Law School, and is a regular commentator on nonprofit legal issues for NBC News, The New York Times, The Wall Street Journal, The Washington Post, Los Angeles Times, The Washington Times, The Baltimore Sun, ESPN.com, Washington Business Journal, Legal Times, Association Trends, CEO Update, Forbes Magazine, The Chronicle of Philanthropy, The NonProfit Times and other periodicals. He also has been interviewed on nonprofit legal topics on Fox 5 television's (Washington, DC) morning news program, Voice of America Business Radio, Nonprofit Spark Radio, and The Inner Loop Radio.
our people George E. Constantine Partner Washington, DC Office
Mike Curtin is CEO of DC Central Kitchen, a nationally recognized "community kitchen" that recycles food from around Washington, DC and uses it as a tool to train unemployed adults to develop work skills—while providing thousands of meals for local services agencies in the process. Drawing on his experiences as an entrepreneur in the restaurant business, Mr. Curtin has spent significant time expanding the Kitchen’s revenue-generating social enterprise initiatives. Under his leadership, DC Central Kitchen’s Fresh Start Catering has expanded from traditional catering opportunities to include contracts to provide locally-sourced, scratched-cooked meals to schools in DC. Since 2010, DC Central Kitchen has generated over $20 million from these businesses, and social enterprise now accounts for roughly 65% of the Kitchen's total operating budget. Because of these and many other innovative social service programs, the Kitchen now employs over 130 people, approximately 40% of whom are graduates of the Kitchen’s nationally recognized Culinary Job Training Program.
In order to secure sustainable, healthy food for the Kitchen, Mr. Curtin has developed strategic partnerships to purchase unclassified produce from local farms. This initiative has saved money and employed more graduates of the Kitchen’s Culinary Job Training Program. The Kitchen’s new focus on procuring local produce garnered a Mayor’s Environmental Excellence Award and the Washington Business Journal’s Green Business Award for Innovation.
Mr. Curtin is a Chair Emeritus of the Restaurant Association Metropolitan Washington and a board member for The Common Market in Philadelphia. He also is on the Advisory Board of DC Greens and Catalyst Kitchens, the Leadership Council of DC Hunger Solutions, and an Advisory Board member for the Center for Health and the Global Environment at Harvard Medical School.
Use of a bylaw committee is one of the most common ways nonprofit organizations go about the bylaw review and amendment process. If the bylaw committee is comprised of individuals that do not represent a full cross-section of your organization’s membership or constituency, they may find some opposition when sending bylaws to the full membership for approval (for nonprofits with voting members) or to the full board of directors. By creating a bylaw committee that fully reflects your organization's population, you are less likely to run into this problem, and you will have more success vetting potential issues early on in the process.
5. Coordinate the actions of your bylaw committee with legal advice.
When rewriting bylaws, almost inevitably, a legal adviser will be able to spot inconsistencies and potential problems. Try to coordinate with legal counsel from the beginning of your process, not after all of the committee’s work has been done, when it can be very difficult to start over.
6. Create bylaws that reflect the appropriate political climate of your organization.
Bylaws should reflect the appropriate balance of power among the members (if there are members), the board of directors, and the executive committee (or other bodies within the organization’s governance structure, such as a house of delegates, key committees, or other structures). Some newer nonprofit corporation acts allow for more flexible governance arrangements, such as the creation of “designated bodies,” which provide another option for spreading out the balance of power. Designated bodies, which hold some, but not all, of the power of members or boards of directors, can be particularly helpful in more parliamentary style organizations. Depending on the state in which your organization is incorporated, there could be several options for the disbursement of governance responsibilities;
carefully weigh all available options.
7. Keep your bylaws current.
Frequently, organizations inherit bylaws that have been patch-worked together over time. Thus, nonprofits sometimes end up with antiquated bylaws that are not appropriate for how the organization functions today. Sometimes the best solution is to scrap the original bylaws and start over from scratch, using a good, proven model provided by legal counsel or others as a starting point.
8. Keep your bylaws flexible.
How the organization functions today may not be exactly the same as it will need to function in the future. Building flexibility into the bylaws, such as including a range for the exact number of board members and allowing the board to designate additional officers not named in the bylaws, can help the organization moving forward. Bylaws should provide an outline of the governance structure but also should allow some flexibility if and when changes are needed in the future.
9. Reserve the details for policies, not bylaws.
Some details are more appropriately placed in board-approved policies rather than in the bylaws. These often include items such as membership criteria, membership dues determinations, and the operation of committees. It also is helpful to place all board-approved policies into a single physical and/or electronic policy manual. Bylaws generally should be a relatively concise and easy-to-navigate document, leaving the details to policies, which can be more easily revised in the future. This way, bylaws will not need regular amendment.
10. Ensure that your purposes clause reflects your organization today.
This is actually a tax-exemption issue, first and foremost. The IRS generally will refer, among other things, to the purposes clause in a tax-exempt organization’s articles of incorporation to determine what is a related versus an unrelated activity. Most nonprofits also have a purposes clause contained near the beginning of their bylaws, and many times that purposes clause will differ, in one or more material respects, from the purposes clause in the articles of incorporation, the latter of which is controlling. The two clauses should be fully consistent and, therefore, an organization might want to include a clause in the bylaws which simply refers to the purposes clause as written in the articles of incorporation. In addition, the purposes clause in the articles of incorporation should be reviewed, keeping in mind that a clause drafted 30 or more years ago may not accurately or fully reflect your organization today.
11. Closely review the meeting and voting procedures for members and directors.
This is an area where we commonly see bylaw provisions that are inconsistent with the governing state law. Nonprofits should closely review how members (if there are voting members) and directors are permitted to meet and vote under the relevant state law. Keep in mind that many state nonprofit corporation acts do not allow directors to vote by proxy, and instead require a director to attend the meeting in-person or via telephone to be counted as present at the meeting for purposes of quorum and voting. Also, although the trend is certainly changing, some state nonprofit corporation statutes still do not allow members to vote outside a meeting unless by unanimous written consent (with the written approval of all members); even for the many state statutes that do permit member voting by email, sometimes specific procedures or prerequisites are prescribed.
12. Look at committee composition.
Some state nonprofit corporation acts are very specific as to who can serve on a committee of the board and how such persons may be appointed. For example, the District of Columbia and several states require that “committees of the board” only be made up of directors and that those committee members must be appointed by at least a majority of all directors in office (as opposed to a majority of those directors present at a meeting at which a quorum is present, which often can be a lesser number). This requirement applies to those committees exercising the power of the board, such as an executive committee or an audit committee. In these jurisdictions, other committees not exercising the power of the board, such as fundraising committees or nominating committees, can have committee members who are not directors.
13. Pay attention to the approval process.