Posts Tagged ‘nonprofit lawyer’

Governance vs. Management

Nonprofit Law and Governance Hazards to Avoid

Hazard #2: Ignoring the Distinction between Governance and Management

Understanding the General Legal Structure of a Nonprofit Organization

Unlike a privately-owned (‘for-profit’) business, a nonprofit organization typically does not have owners. In a privately-owned business, net earnings may be distributed to shareholders, employees, or other persons who have a legal right to participate in the profits of the company. For a nonprofit organization, though, there is no ownership; that is, no individual has the legal ability to profit personally from the organization’s activities (hence, “nonprofit”).

Rather, nonprofit organizations are formed for a specified purpose, other than generating income. Its purpose may be advancing the mutual interests of the organization’s members (a mutual benefit organization) or advancing a religious, educational, charitable, scientific, civic, social, or other recognized “public” purpose (religious and public benefit organizations).

Nonprofit organizations are permitted to earn net revenues (as the saying goes, “nonprofit is a legal structure, not a business plan”), but net revenues must be used for the organization’s programs or otherwise reinvested in the organization; they cannot be distributed to individual persons.

No ownership does not mean no control or no accountability. Control of a nonprofit organization is divided into two areas: Governance, which is the responsibility of the board of directors (or trustees), and Management, which is the responsibility of the senior executives, acting under the authority of the board. Nonprofit organizations are accountable to their members (if the organization has members); its donors, funders, constituents, and the communities it serves; state agencies; the Internal Revenue Service and state taxing authorities; other oversight or regulatory authorities (depending on the organization); and the general public.

Distinguishing between Governance and Management

Corporate governance deals with the big-picture concerns of the organization: defining the organization’s mission, approving the annual budget, ensuring adequate internal controls, adopting governance-related policies and procedures, hiring and overseeing the chief executive, approving major decisions, and the like. Governance is the purview of the board of directors. A corporation’s management relates to the day-to-day administration of the organization’s programs and activities.

Organizations that run into trouble often suffer from one of two extremes. One extreme is the disempowered, disengaged, derelict, or absent board of directors. These are the boards that never hold meetings, or simply “rubber stamp” the desires and decisions of the chief executive. On the opposite end of the spectrum is the micro-managing board, where the directors insist on getting involved in the minutiae of day-to-day management or frequently interfere with the decisions and actions of the chief executive. While boards must be vigilant in fulfilling their governance and oversight roles, they must also be careful not to step over the line and begin managing the day-to-day activities of the organization.

In between those two extremes are a variety of models of effective board governance. Part of the board’s role in fulfilling its duties and responsibilities is to work with the organization’s chief executive to determine the appropriate boundaries dividing governance—the purview of the board—and management, which is the responsibility and realm of the chief executive and senior management, acting under the authority, direction, and oversight of the board.

Just as there is no “one-size-fits-all” model of nonprofit corporate governance, there is no “perfect” balance between governance and management. Each organization must arrive at a workable understanding of the role of the board versus the role of the chief executive and senior management team, taking into consideration the organization’s particular needs and circumstances, and remaining mindful of the legal standards and duties of the board which generally may not be delegated to others.

This should be viewed as an ongoing dynamic process, a dialogue. In a symphony orchestra, everyone works together to pursue a shared goal: interpreting and bringing to life the composer’s artistic expression. The conductor has a very different role than the performers, but they work in concert to make music. In American football, the specific role that a player takes on the field is determined by the player’s position. The quarterback has a very different role than a wide receiver. How the various positions interact with each other will vary from play-to-play, though. It is a dynamic mediated engagement toward a common goal.

Basic Responsibilities of Nonprofit Boards

With this understanding in mind, what are the general roles and responsibilities of nonprofit boards? In his book, Ten Basic Responsibilities of Nonprofit Boards, 3nd Ed. (BoardSource 2015), Richard T. Ingram, president emeritus of the Association of Governing Boards of Universities and Colleges, outlines ten basic responsibilities of nonprofit boards:

  1. Determine mission and purpose. The board is responsible for establishing and reviewing the statement of mission and purpose that clearly articulates the organization’s goals, means, and constituents served.
  2. Select the chief executive. The board is responsible for delineating the chief executive’s responsibilities, and for searching for and employing the most qualified individual for the position.
  3. Support and evaluate the chief executive. The board also must support the chief executive as he or she administers the organization’s programs, both directly and by ensuring that the executive has adequate resources and professional support.
  4. Ensure effective planning. Boards have a duty to actively participate in the organization’s overall planning process, and to assist in implementing and monitoring the plan’s goals.
  5. Monitor, and strengthen programs and services. The board is responsible for determining which programs are consistent with the organization’s mission and for monitoring their effectiveness.
  6. Ensure adequate financial resources. One of the board’s foremost responsibilities is to secure adequate resources for the organization to fulfill its mission.
  7. Protect assets and provide proper financial oversight. The board must assist in developing the annual budget and ensuring that proper financial controls are in place.
  8. Build a competent board. The board also has a responsibility to articulate prerequisites for candidates, help train and guide new directors, and periodically and comprehensively evaluate their own performance.
  9. Ensure legal and ethical integrity. The board is ultimately responsible for the organization’s adherence to legal standards and ethical norms.
  10. Enhance the organization’s public standing. The board should clearly articulate the organization’s mission, accomplishments, and goals to the public and garner support from the community.

Ingram points out that while “…there is no one-size fits all model to governance, [these] are fundamental responsibilities that hold true for almost every board”


Innovative Legal Solutions for Nonprofits

Image of business person pointing to the word "Solution" on a clear screenI’m excited to announce that I’ve revamped the way I’m serving my nonprofit clients. After seeking input from clients and colleagues, I’ve developed a new streamlined solution that provides nonprofits with effective and practical legal services on a regular recurring basis.

This solution addresses several common issues that keep nonprofits from accessing quality legal services.

What are the issues?

  • Nonprofits have very real and often complex legal needs
  • These legal issues frequently cause blind spots, sticking points, and bottlenecks
  • Getting legal help without breaking the budget or sacrificing quality can be a big challenge

To address these issues, we provide:

  • Results-oriented legal services with consistency and predictability in pricing
  • Continuity for long-term planning and program implementation
  • Super-easy scheduling for busy executives

This solution helps clients to:

  • Stay focused on the organization’s mission
  • Maximize impact
  • Proactively address legal issues in real-time

So, what does this Solution look like?

I’m glad you asked!

The solution, explained in more detail below, is a platform for providing regularly-scheduled legal consultation sessions to address issues as they arise in real time, and to engage in ongoing business and tax compliance planning.  It’s also about redefining the attorney-client relationship in the specific context of 21st Century organizations.

I’ve been testing out this framework with a few of my nonprofit clients, with very positive feedback and results. I’ve worked out a standardized pricing structure, expanded capacity to make this available to more organizations, and tapped into some pretty cool technologies to make it even easier for busy nonprofit executives.

Below are additional details about the problems and the solution.

If you prefer Cliff notes, skip to a Summary of the Problem
If you like spoilers, skip to The Solution. Hint: We make it easy and affordable!


1. Complex Regulatory Framework

In the past few decades, the regulatory structure governing nonprofit and tax-exempt organizations in the U.S. has grown increasingly more complex, pushing the nonprofit sector into the realm of a ‘highly-regulated’ industry such as banking, energy, or pharmaceuticals.

The complexity of this regulatory framework frequently leads to blind spots (“we don’t know what we don’t know”), sticking points (“…are we allowed to do that?”), and bottlenecks (“we’re still waiting to hear back from HR, and they’re still looking for an attorney who might be able to get us an answer”).

2. The Overhead Myth

Nonprofits, and particularly public charities, have been bombarded with the message that the primary (or sole) measure of their performance is the percentage of expenses that go to administrative and fundraising costs—commonly referred to as overhead. (Want to learn more? Read “The Overhead Myth: Moving toward an Overhead Solution” by Guidestar, or search for the Ted Talk by Dan Pallotta.)

3. Runaway Legal Fees

There’s a widespread notion that quality legal services are simply too expensive, and therefore out of reach, for most nonprofits. Clients fear runaway fees (i.e., the “meter”). And rightly so! (“Churn that bill, baby!”)

Nonprofits, even more so than other business enterprises, must be able to plan ahead and budget for professional services. Runaway fees are hard for any client; for nonprofits, they can be devastating.

I began revamping my own law practice after sitting down and asking clients about their needs, their concerns and issues in seeking legal help, and other related questions. These conversations were enlightening, particularly with respect to budgeting concerns, and they opened up an entirely new possibility of how to structure the attorney-client relationship to make it fit the unique needs of nonprofit organizations in the 21st Century.

4. The Costs of Avoidance

The net result of these factors has been a twofold strategy in the nonprofit sector: Ignore the issues altogether, or find someone to do legal work for free

Given the complex regulatory framework, pressures to reduce overhead, and skyrocketing legal costs, is it any wonder that many nonprofits feel they have no choice but to minimize or simply ignore legal and tax compliance issues? And, after all, “these things have a way of working themselves out, right?” Well, sometimes yes. But often no.

In many situations, ignoring issues or delaying just decreases options and makes the solutions more difficult and costly. Remember the rule that’s often cited in the context of auto maintenance, your physical health, and dental care? It works here too: When it comes to nonprofit legal needs, “an ounce of prevention is worth a pound of cure.” Some of us have to learn this the hard way (I’m certainly on that list), but it seems to be a law of the universe, and it applies to organizations as well as to individuals.

When it comes to a nonprofit’s governance structure and tax-exempt status, it pays to be intentional, proactive, and even strategic, addressing issues in real time as you plan and implement your programs and carry out your day-to-day operations.

5. The Hidden Costs of FREE!

The other strategy employed is to seek out pro bono legal services. This practice is so common that the terms “nonprofit law” and “pro bono” have become something of a collocation.

In linguistics, a collocation is the frequent use of certain words together. Like “fast” and “food.” It’s not quick food, it’s fast food. In the nonprofit sector and in the legal community, “nonprofit” “pro bono” and “legal service” are frequently used together.

If we dig deeper, especially in the legal community, there’s really a conflation (a ‘fusing together’) of three distinct things:

  • pro bono legal service for individuals who can’t afford an attorney
  • legal work for nonprofit organizations
  • volunteer service on a nonprofit board

The above categories of service are not one and the same. Each type of service involves specific legal and ethics rules that must be considered and worked through for that particular situation. Conflating these three things can lead to role confusion, substandard service, suboptimal outcomes, legal and ethical quagmires, and sometimes disastrous results.

There’s certainly nothing wrong with attorneys donating their time to nonprofits. Attorney involvement with charities and voluntary associations reflects a tradition of public service and civic engagement dating back to the 19th Century and, in some forms, to before the republic was formed.

This tradition of community involvement is very much alive in the legal community, and should be encouraged, especially with Americans ranking lawyers at the very bottom of the list of occupations in terms of their contribution to society.

As attorneys, when we volunteer with a nonprofit organization, in any capacity, we’ll maximize our value when we:

  • Clearly define the role in which we are serving;
  • Take time to understand the organization’s unique mission, structure, history, and needs (remember, “one size fits none”);
  • Investigate and work through the legal and ethics rules that may apply in the specific context of our involvement.

We also need to understand and acknowledge boundaries and limits. Given the prevalence of legal problems caused by well-meaning but ill-informed pro bono lawyers, perhaps attorney-volunteers should be required to take an oath of non-maleficence (“first do no harm”).

On the nonprofit side, there can be great value in seeking out no-charge or low-cost professional services. But beware the hidden costs of Free!

In working with nonprofit clients, I frequently help identify and maximize the benefits of solutions that advance the mission, increase impact, align with the strategic plan, and improve cash flow. This includes free and low-cost solutions. But we also talk about the hidden costs, and why it pays to look at Value, taking into account all of the costs and potential benefits of a particular proposal or course of action.


Nonprofits have significant and unique legal needs.

These legal issues often create bottlenecks, pain points, and blind spots.

Many nonprofits feel like they have only three options when faced with legal issues:

  1. Pay a law firm a lot of money (“money we don’t have and haven’t budgeted”);
  2. Find someone to do the work for free. They might get it right, they might not, but we’ll feel better (for now), and at least it won’t add to our overhead spending (for now); or
  3. Put our heads back in the sand (“Legal issue? Did someone say legal issue?”).


As part of my revamped law practice, I’m providing regularly-scheduled Legal Consultation and Business Planning Sessions specifically tailored for the busy nonprofit executive, as well as other options for accessing legal services, with predictability in pricing and rates that make this available to all but the smallest of nonprofits.


Benefits of regularly-recurring Legal Consultation and Coaching Sessions:

  • Support from an experienced attorney who understands the unique needs of nonprofits
  • Consistency over time in resolving business and tax law issues
  • Input on practical matters to help you advance your mission, maximize your impact, and grow your bottom line, without running afoul of the legal and tax rules governing nonprofits
  • Ease and flexibility of scheduling
  • Easy billing and payment solutions; fixed-fee pricing for predictability in budgeting


Do you know someone who might benefit from this? Please pass this along!

* NOTE: Randy provides board training and speaking services through Enquire Consulting, LLC (“ENC”). Randy provides legal services, separately, including legal consultations and executive coaching, through his law firm, Evans Law, PLC. Services provided by ENC do not include legal advice or representation. Hiring ENC, or speaking with Randy in any capacity other than as a client of Evans Law, will not create an attorney-client relationship with Randy. Any communications with Randy, verbal or written, other than as a client of Evans Law, are not covered by the attorney-client privilege. The services provided by ENC and all other communications unrelated to Randy’s law practice, are not subject to the rules of professional conduct governing law firms and attorneys.