Big Nonprofit Ideas for the Other 95%
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Stephanie Strom, NY Times reporter, discussing nonprofits facing failures.
Gene Takagi, Esq., Nonprofit legal consultant, discussing board responsibilities.
Ken Cerini, CPA, Cerini & Associates LLP, discussing back-of-house cleanup.
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No hello and welcome, i’m tony martignetti, the aptly named host of tony martignetti non-profit radio big non-profit ideas for the other ninety five percent you’re small and midsize non-profit has a home here at tony martignetti non-profit radio last week we put the focus on you as an individual, and we had a lot of tips for tuning up your retirement planning, and the focus was on you. This week, we’re bringing the focus back to your non-profit my first guest after the break is going to be stephanie strong reporter for the new york times, and we’re going to be talking about failure fair that was a program sponsored by the world bank. Should you be talking about mistakes and failures that your organization makes it’s good enough for the world bank? I’ll talk to stephanie about her recent piece in the times and after stephanie, i’ll be joined by ken cerini, managing partner of cerini and associates. We’re going to talk about financial freedom for your non-profit and the potential loss of non-profits status for those small organizations, and after ken, i’ll be joined by jean takagi on attorney for non-profits gene’s going to share techniques to keep your board on board and keep your board out of trouble. All that this afternoon on tony martignetti non-profit radio. Stay with us for others. Break. Talking alternative radio twenty four hours a day. Are you stuck in your business or career trying to take your business to the next level, and it keeps hitting a wall? This is sam liebowitz, the conscious consultant. I will help you get to the root cause of your abundance issues and help move you forward in your life. Call me now and let’s. Create the future you dream of. Two, one, two, seven, two, one, eight, one, eight, three, that’s to one to seven to one, eight one eight three. The conscious consultant helping conscious people. Be better business people. Dahna is your marriage in trouble? Are you considering divorce? Hello, i’m lawrence bloom, a family law attorney in new york and new jersey. No one is happier than the day their divorce is final. My firm can help you. We take the nasty out of the divorce process and make people happy. Police call a set two one, two nine six, four, three, five zero two for a free consultation. That’s lawrence h bloom two, one two, nine, six, four, three five zero two. We make people happy. Hey, all you crazy listeners looking to boost your business? Why not advertise on talking alternative with very reasonable rates? Interested simply email at info at talking alternative dot com dahna welcome back. I’m tony martignetti, the host of tony martignetti non-profit radio. I’m joined now by stephanie strong reporter for the new york times, she’s, the non-profit beat reporter for the times stephanie thank you very much for joining me in the studio. Thank you, tony, for inviting me. On august sixteenth, you had on article that was titled non-profits review technology failures and you were covering something called fail fair that was sponsored by the world bank. Sounds like it was fun. What thomas about fail fair well, feel there it’s actually a gn event that was cooked up by an organization called mobile active, which is a network of non-profits working to use technology to bring social benefits primarily internationally, but also locally it’s. How do we use thie gadgets that all of us have in our lives to make the lives of the poor and the needy better? And the world bank had been to the first of these events in new york, and it decided it would be fun to have one in washington in its offices. Because the world bank certainly has a lot of failures to share. It’s it’s got a new transparency policy. And it thought this would be a great way to advance that, and it was a very fun event because it’s done is a cocktail party type of event. So people are very relaxed presenters make a presentation of an example of a failure or several examples of a failure of technology to deliver the social goods that people western aid or non-profit agencies would have expected. And the idea is that by doing this in a very relaxed setting, people will accept the the story of the failure and maybe take away some lessons from it that they can then apply to their own work so that they don’t make the same mistakes. Were there other participants there besides the world bank? Yes, i would say about half of the presenters were world bank employees, and the other half came from a wide variety of different types of organizations. Some of them were consultants that had done research. Some of them were actual employees of the organizations. What was one of the failures that sticks out in your mind as memorable? Well, the one that that i discussed in the story at the top of the story was one. That really sort of crystallized it. Several years ago, the ah telephone company in guiana, i decided that as a gesture of corporate so what we would call corporate social philanthropy, whose social responsibility it would set up a telecom center in a very remote part of the amazon, and a group of very enterprising women who probably had never used a telephone figured out that they could sell these beautiful woven hammocks that they make over the internet. They developed quite an international market for these things and ended up collecting about seventeen thousand dollars. Well, this upset thie traditional power structure, which was male dominant and their husbands literally pulled the plug on the darn thing and said, no more selling over the internet. We don’t like this thing forget it, and that was the end of that. So in that case, it was the husband’s not donors to the program, but husbands that pulled the plug husbands, village elders, men on the lesson there was that there was an upset to the culture that right? The lesson was that if you’re going, you know, one of the presenters said it, you’re much more eloquently than i can. But that we often go in expecting technology. We technology works in our culture because our culture has adopted it, embraced it, developed it. But when we kind of just plop it down willy nilly in another culture and anticipate that it will work the same way that it does in ours, we often run into trouble admitting mistakes. Then you said the world bank has a policy of openness and transparency about their their failures, their mistakes. This is not something that we typically see in the larger non-profit community, right? Well, the world bank, i think back in april adopted it’s really a data transparency policy, but data, of course is going to show you mistakes. So this is all part of trying to be more open sharing. What we know what we’ve learned with everyone, so that people don’t make it again don’t make the same mistakes, learn something from it non-profits are reluctant to discuss failure, i have found because they don’t necessarily want to discourage donors. Donors may not look att a failure as a learning experience donors may look at it is ah, why would i give money to this organization that failed in this programme or in this way and that really is the sixty four thousand dollar question, i think how our donor is going to react to their money, having been devoted to something that didn’t have the outcomes we want. Well, i think most donors prefer, of course, that there money go towards things that bring benefit, but i also think that there are, at least among sophisticated donors, donors who understand that sometimes things don’t work out many of the wealthiest donors today. Our guys who became wealthy because of venture capital and in venture capital, of course, for every huge success, like ebay, they’re a ten or twenty failures, and they’re accustomed to evaluating those failures. So our hope is that that will translate to they’re giving to non-profits that’s, right? That’s the community’s hope stephanie strahm’s article on august sixteenth was online non-profits review technology failures. You can follow stephanie on twitter’s. Her idea berries at s s strahm. I follow her, she follows me. Thank you for that. And i’m very grateful that her coverage brought us. Brought her to the studio today. Thank you very much. Definite. Thank you, tony. We’ll be back after this. Break with ken cerini and we’ll be talking about keeping your non-profit out of trouble. This is tony martignetti non-profit radio getting ending. Duitz e-giving ding, ding, ding, ding. You’re listening to the talking, alternate network waiting to get in. Cubine hi, i’m new york state senator joe a dabo. I will be hosting a Job fair on friday, november 12 and aqueduct racetrack in queens, contending into three p m, we will have over one hundred companies looking for qualified workers. They’re all to be lectures on jobs, try to jeez and networking. So come and bring plenty of resumes and join me on friday, november twelve at aqueduct racetrack for a Job fair 10AM2 three p m. For more information, please call pete in my district office at seven one eight seven three eight one one one one. I really need to take better care of myself. If only i had someone to help me with my lifestyle. I feel like giving up. Is this you mind over matter, health and fitness can help. If you’re expecting an epiphany, chances are it’s not happening. Mind over matter, health and fitness could help you get back on track or start a new life and fitness. Join Joshua margolis, fitness expert at 2 one two eight six five nine two nine. Zero or visit w w w died. Mind over matter. Y si dot com. Cerini are you suffering from aches and pains? Has traditional medicine let you down? Are you tired of taking toxic medications, then come to the double diamond wellness center and learn how our natural methods can help you to hell? Call us now at to one to seven to one eight, one eight three that’s to one to seven to one eight one eight three or find us on the web at www dot double diamond wellness dot com way. Look forward to serving you. You’re listening to the talking alternative network duitz geever this is the talking alternative network. I’m tony martignetti, the host of tony martignetti non-profit radio. My guest now is ken cerini ken is managing partner at cerini in associates, which is an accounting audit and management consulting firm. Ken has an impressive array of acronyms following his name. Ken is a c p, a of course certified public accountant, also cfp, certified financial planner and d a b f a diplomat of the american board of forensic accountants a diplomat. I’m going to ask him if that comes with parking privileges in new york city, i’d like to have his license plates if it does, ken has a lot of experience working with large, publicly traded companies, small, closely held companies and, of course, non-profits both at his firm cerini in associates and also at ernst in young cerini in associates does ah lot of strategic and management consulting, which includes budget and cash flow analysis, contract reviews, compensation reviews and negotiated settlements with government agencies, and i’m very glad that ken’s work brings him to the show today can cerini welcome thanks for having my pleasure, small and medium non-profits are facing something now with the i r s their potential loss of tax exempt status if they haven’t filed their nine ninety lately, can you help us explain what’s going on there? Sure, sure, no problem what happened back in prior to two thousand seven non-profit organizations that generated under twenty five thousand dollars worth of annual revenue, we’re really not required to file tax returns basically, if they were smaller organizations, the government don’t don’t bother filing it would take too much paperwork and everything else to do these filings over the years. So the number of non-profits that have built up on the irs system has grown to be tremendous levels and toe manage that database it’s costing the irs a tremendous amount of money. There’s something like one point two or one point, three million non-profits now is that right? Very, very large, and a large percentage of those are under that twenty five thousand dollars threshold, right? Or very close to it very, very large percentage here in new york, which is where i’m from the the number of non-profits generating under a million dollars worth of annual revenue is probably close to about forty percent of the total non-profits yes, most non-profits that exist out there are smaller non-profit organization and that’s, exactly consistent with what i see on charity navigator statistics that the same forty percent number forty percent of the non-profits generating very low, sort of low levels, mid to low levels of revenue, but so i’m sorry. Go ahead, please consider what i’m saying. So then, in two thousand seven, the ira said in order for us to really gain an understanding of which of these non-profits are still in existence, or maybe some of these non-profits don’t really exist anymore. They set up a new finally requirement, which is really just a you know, one of those i am here type filings where it’s a postcard enough for nine ninety end that you just file electronically to let the government know that you’re still in existence and you’re still functioning as a non profit organization and that literally is a postcard that xero it’s for all practical purposes. Yes, it’s about three or four questions, and you’re done so the irs and again get filed electronically. So the irs said, if we don’t hear from you for your two thousand seven filing your two thousand eight filing into two thousand nine filing, we’re going to automatically assume that you no longer exist as a non profit organization, and we’re going to terminate your tax exempt status. So this is a problem that many non-profit organizations find themselves in right now because all along they’ve never had to do any sort of filing, and then the rules changed three years ago, and now they’re being asked to file even though it’s very simplistic there were being asked to file some level of filing and if they don’t know about it and they’re not following the changes in the iris regulations it’s possible that on, unbeknownst to them, they get terminated as a non profit organization and they no longer exist. Yes, and we’re talking about the smallest organizations that are apt to not have the expertise that tracks, you know, new irs regulations, new being back in two thousand seven, typical typically, these organizations from the rely heavily upon volunteers, so they’re using a lot of their board of directors are probably unsophisticated, you know, they’re focused on, um, the core mission and really minor activities that they’re doing, and they’re really not focusing on, you know, the changes. That are happening out there in the irs. So what can an organization due to find out if it’s at risk and then be if it is, how could they get into compliance? The irs has a if you go to irs dot gov, which is the irises website, and you look up exempt organizations, the irs has the listing of those organizations as of june thirtieth that had not yet filed um and it’s broken out by state and in new york state alone, there’s twenty one thousand five hundred seventy eight non-profits on this list and that is the list of organizations at risk of automatic rev a gate revocation of tax exempt status that’s the heading on that page yet that’s correct. Okay, the’s the once and again the hasn’t been updated far as i know since june thirtieth, so this is a little outdated, so on organization, who has recently filed may find themselves on this list, but they need to understand that that’s because the information is as of june thirtieth, organizations that are december thirty first year and filers have until october fifteenth to come in compliance if they don’t come into compliance by october fifteenth and that’s actually an extended it was originally made fifteen from the irs gave organizations in additional time frame till october fifteenth, but if they don’t come into compliance by october fifteenth, they are going to lose their epic and they’re going to have their exams are exempt organizations revoked. I think iris was concerned about what was gonna happen with that original date and there was a fair amount of popular press leading up to that date, but still the vast majority of organizations didn’t take advantage of coming into compliance, so they think they were sort of forced to extend it lest i don’t know many hundreds of thousands of organisations lose their status on dh again. The answer may be that many of these organizations are not functioning any more. I have ceased to function over the years and, you know, losing their exempt status is not a big deal, but i’m sure looking on the list. There are some organizations that are still functioning on dh you really have no idea that this is happening and really stand to be in a position where you know they find themselves on october sixteenth, they’re exempt. Status is gone and they could be putting donors at risk. They could be put in the organization of risk, their board at risk and everything else. My guest is ken cerini, managing partner of cerini and associates. We are live today taking your calls. The calling number is eight, seven, seven, four, eight, zero, forty one, twenty eight, seven, seven, forty xero forty one twenty. Now, if you were listening to the divorce our with larry bloom right before the show you heard larry say that this was our first live show, but larry’s show was an archive edition pre recorded the so we’ve had a plethora three live shows that i believe this is our third life show. So don’t be don’t be discouraged whether it’s our first or third or really is many, many more which it’s not please call in if you have questions at eight seven seven for a tow forty one twenty can how is the recession that we are still in the midst of affecting smaller organizations in terms of especially, i think, in terms of cash flow, i think what you find out there that most non-profit organizations, if you think about the economy there more people out of work there are businesses are not doing as well. So there’s less money flowing to the non profit sector. We see out there that the the amount of contributions and fund-raising going to the non profit sector is down somewhere in the twenty five to thirty percent range and has been over the last probably a year and a half. So you know, you’ve got these organizations that are receiving much less money than what they’re used teo and what we find on, i think it’s kind of born out across the country is that the number one funding source for nonprofit organizations is government grants is probably number one and number two, especially for the smaller organizations, contributions and fund-raising so organizations rely very, very heavily upon these government grants coming in, and they rely extremely heavily upon the contribution income that’s coming in. So when that income is down twenty five, thirty percent there’s going to be much more of an onus on the government grants and making sure that that government funding is flowing on a regular basis? Yes, but that let me just say much more focused on the need for the government grant about going in so that that that helps the buoy are both of the cash flow that they have and all happening. One of the quick comment before i get back to that you’re in a situation where, especially in the health and welfare type organizations that provide benefits to two people, the fact that there’s ah hyre level of unemployment there’s a higher level of stress and people’s lives, people are turning mohr towards alcohol, drugs, things like that because of the stresses in their lives. Um, you’re in a situation where the level of need for service treyz up, so you’ve got increasing level of need for service, and he’s got a decrease in the funding that’s coming in, and then, as i mentioned before, so they’re relying more heavily on government funding. Now, one of the problems that you have is, you know, in this environment that we find ourselves in, not only is it that the individuals and businesses are having cash flow constraints and problems, but the government is having some issues too, so the government has been cutting back on some of the funding that it’s done on top. Of that, the government, because they have been able to get their budgets passed because again, strains on cash flow at the government level has also slowed down the payments that they’re making to the non profit sector, which is kind of adding to the problem. So you’ve got non-profit organizations, they’re seeing decreases and funding to begin with and then on top of it, the government funding which is supposed to be, you know, that constant that rock that’s there on on an annual basis is either starting to dry up a little or or is taking longer to get in the doors on it’s, creating all sorts of cash flow issues for the housing sector. And what are you counseling your clients who are find themselves in this situation? What organizations really need to do it, it’s all about communication? I mean, i think communication is something that’s extremely important, so it really comes back down to communication. A lot of these organizations need to go out and talk to their their banks and developed banking relationships early on in the process, you know, they need to make sure that the banks understand that the money will be there, it’s, just a matter of time. You know, banks are starting to look at the non-profits and they’re they’re receivables of the nonprofit organizations are aging at a little further than they normally would be, which makes the non-profit look like they’re less bankable, so just explain that a little bit. Why is why isn’t an aged receivable less less appealing to a bank or less bankable? Because when a bank looks at a nonprofit organizations receivables, they’re looking at it in terms of our these receivables collectible, and typically what happens is the older reese thie older receivable is the less likely that an organization is going to collect that people usually receivables once they start aging out usually means that maybe there’s something wrong with that receivable and that’s. Why the money hasn’t come in yet unfortunately, in today’s environment, that’s not always because the receivable is not a good one. Ah lot of times, it’s, because, you know the cash flows constraints that the governmental agencies air having again here in new york, it took a long time to get the budget passed, and since the budget wasn’t passed on a timely basis, they were delays. In getting contract signed because the contracts were delayed in getting signed. It was delays in getting the money out to non-profit organizations. And it becomes, you know, this this domino effect and a lot of organizations were left there trying to figure out, how am i gonna pay my payroll? So even though the ah the entity that owes the money is is a government agency, the bank still looks at that as, ah less likely to be received. Um, i again and i think that’s where it comes into that communication piece where non-profit organizations need to be able to go to the bank and say, hey, look, here’s what’s happening out there in the marketplace, we have government grants, those government grants are going to come in here’s the signed contract, we’re going to get the money even though it’s been aged out more than typical krauz maybe the bank is used to seeing the non-profit collect the money in sixty to ninety days and now it’s one hundred twenty hundred fifty days out by having that communication by developing that that strong, open communication line with the banker that you’re working with, it really can help. To ensure that the the lines of credit in the cash flow continue to flow into the nonprofit organization while the organization is waiting for government grants to free up. And when you talk about aged, is that you mentioned a hundred twenty, one hundred fifty days is that roughly the time at which ah ah, bank or other agents potential credit agency is likely to start calling these receivables aged? Is that roughly the time frame? Somewhere in that range, when you start getting toe one hundred twenty hundred, fifty hundred eighty becomes a lot less attractive. Typically, banks like to see the money collected it within ninety days, and for the most part, most non-profits really should collect their money within a ninety day period of time, especially when they’re relying heavily upon service government type money again, unfortunately, in today’s economy, that’s not happening, so banks would be open to this kind of a conversation. I mean, this sounds a lot like the advice for here in the popular press if you’re having trouble with your mortgage that you should pick up the phone and call the lender. So in this case, banks are willing to have this kind of a conversation, i mean, they’ll they’ll take this kind of a call, you have what you have a relationship already with the bank it’s been, you know, you’ve had that relationship for a period of time, the bank’s really from a working with a nonprofit sector, the banks really don’t want to pull loans from non-profits it really doesn’t look good for them either on dh banks get credits working with the non profit sector, so it is a positive that the banks want to work with sector, so they just want to know that their loan is going to be a good loan and that you know, that there’s, rational and reasons behind what’s taking place. And if you open up those lines of communication and they’re going to be much more responsive than if you just send them something and say we need more money and cannon just the forty five seconds or so we have before a break, are you finding that non-profits or doing this, or are they mohr sort of staying in their shell and just maybe cowering? I don’t think they’re doing it as much as they should. That’s not to. Say that they’re not doing it. It just i always believed that in business you need to be very proactive in your approach to dealing with professionals that you work with and that you need to reach out and keep those lines of communication open. Because if you don’t, then problems can occur. If you do then everybody’s on the same page, and at least you know if the bank is going to have a problem with it, you know, up front, you know you need to seek alternative. So the tip really is. Pick up the phone, talk to your banker when you before you start to see a problem and head off the head off a potential crisis in cash flow. My guest is ken cerini. We’re going to take a break, and when ken returns with us, we’ll talk a little about his work in compensation reviews and maybe some excess compensation problems. This is tony martignetti non-profit radio stay with us. Talking alternative radio twenty four hours a day. Hi, i’m new york state senator joe a dabo. I will be hosting a Job fair on friday, november 12 and aqueduct racetrack in queens, contending into three p m we will have over one hundred companies looking for qualified workers. They’re all to be lectures on jobs, try to jeez and networking. So come and bring plenty of resumes and join me on friday, november twelve at aqueduct racetrack for a Job fair from 10 a m to three p m. For more information, please call pete in my district office at seven one eight seven three eight one one one one. Oppcoll are you suffering from aches and pains? Has traditional medicine let you down? Are you tired of taking toxic medications? Then come to the double diamond wellness center and learn how our natural methods can help you to hell? Call us now at to one to seven to one eight one eight three that’s to one to seven to one eight one eight three or find us on the web at www dot double diamond wellness dot com. We look forward to serving you. Hey, all you crazy listeners looking to boost your business? Why not advertise on talking alternative with very reasonable rates? Interested simply email at info at talking alternative dot com pompel i’m tony martignetti my guest is ken cerini managing partner of cerini and associates can if someone would like to contact you, how is the best way to do that? I could be reached either by email, which is can see at cerini and associates dot com all spelled out d e r i and i a nd associates dot com or by phone six, three, one, five eight, sixteen hundred and my extension in thank you and the cerini and associates website is www dot cerini c e r n i a nd associates dot com can. There has been a fair amount of popular press about excessive compensation for ceos and other sea level people at at non-profits part of your work is compensation reviews what i’d like to spend the remaining time few minutes we have talking about how a non-profit can determine whether they’re in paying excessive compensation. The irs has established some rules regarding excessive compensation under internal revenue code section forty nine fifty eight, which deals with what’s known as intermediate sanctions. So really, what the irs came out and said, and this this was a result of some of the abuses that happened. Back in the late nineties, where the irs said, you know, we can’t really take away a non-profits exempt status if they if they are over paying their executive director, so what we’re gonna do is we’re going toe charge penalties to both the executive director and any board members who knowingly participate in that overpayment on bats and then pull the exact status, which was really the only teeth the irs had back then. That’s the interim sanction is these these penalties? You know what that is that the interim sanction the intermediate, the intermediates and penalties that the irs now imposes penalties are very, very steep there they could be as high as fifty percent of the excess compensation, so they’re very, very steep. So anyway, so so what happens is non-profit organizations and typically mohr affects larger organizations than smaller, but it really comes down to the salary levels that are being paid non-profit organizations need to really understand that the salary that there, whether the salaries, they’re paying the three key individuals within the organization, which is usually the executive director and other top level management appropriate compensation. And when you look at compensation, you kind of look at the whole package so it looks at not just the salary that’s being paid, but any other benefits that go with it, and the nine, ninety form, which is the tax return that non-profits are required to file, really has very clear with on the form, not just the organization itself, but any related organizations that are associated with that non-profit organization, it has really targeted questions on how much money is being paid to this organization, so it makes it very, very easy for the irs to identify the level of compensation that this individual is receiving and can in just the short amount of time that we have left just about a minute. What, what, what can a non-profit due to see whether they’re paying excessively? The easiest way to handle this is really to go back, and if you go online and do some research, you can find some salary surveys that are out there online there’s some that you can pay for, but there are others that are free, and what you want to do is you want to look to see if the compensation that the executive director is getting compensated is in line with the other competitions for similar sized organizations doing similar things that your organization does in a similar area of the country. The other thing you could do is you can actually go to guidestar dot or ge, which is where all the nine nineties air posted for all of the nonprofit organizations. And you can look at other organizations within your community that are very similar to the organization that you know that you are, and you can take the information of what their executive directors were there. You know, chief people are getting compared to your organization to see if you fall in line with what the other compensations are or whether you’re outside of the realm of what the averages for the group. Thank you very much to look at it. It’s something a that we typically recommend that is done by the board or by a compensation committee of the board. So that it really gets an independent review. And when you look at this on do the board or the independent competition committee are reviewing and approving it? Um, you know, you want to make sure that if the salary does fall outside of the realm that there’s at least the process going through to say why the individual deserves more. Then what? The averages and there’s a rational for that decision making process can we are out of time, but those are excellent ideas and both free ways. Simple ways of doing a benchmark to determine whether you might be at risk of this excessive compensation problem. My guest has been ken cerini, managing partner of cerini and associates. Can one thank you very much for being on tony martignetti non-profit radio. Tony, thank you for having me. My pleasure. Thank you. I’m going to bring now. Ah, guest from san francisco, jean takagi. Gene is an attorney for non-profits. We’re going to talk about some techniques to keep your board out of trouble. Jean welcome to the show. Thank you very much. My pleasure to have you. We’re taking calls again. We’re live today eight, seven, seven, four, eight, zero for one to xero taking calls for jean takagi. If you have some jean, we hear the phrase board governance. What? What does that mean? Well, it means a few things, tony. I think from a legal perspective, it means that the board is responsible toe exercise, its duty of care in its duty of loyalty and duty of obedience, and overseeing the operations and management of the organization to directors of aboard are ultimately responsible for the control in operations of the non-profits providing oversight or governance is the way that that exercise, and so that is very interesting, that duty of care, loyalty and obedience. And i neglected to say when i brought gene on that his practice in san francisco but nationwide is in compliance, governance and non-profit law and gene is the author of the non-profit block, which you’ll find at sorry non-profit law blawg, which you’ll find at non-profit law blawg dot com, and i’ll bet you could go there right now and don’t close this window that you’re listening from. But if you can open another window simultaneously, you can listen to gene and at the same time wed his writing’s on nonplayoff non-profit law blawg dot com you can follow gene on twitter as i do he is at g d, a k at g ta k on twitter, and ken does an enormous amount of speaking. Also, he also serves on local non-profit and exempt organization boards, advisory boards and so that makes him eminently qualified to talk about these subjects board governance and non-profit law generally let’s talk let’s flush out the sort of this board governance a little bit. Gene. What what? How do these duties of care, loyalty and obedience translate to actions that the board should be taking an individual board members should be taking sure. Well, i think they’re a triple ways to look at it from a practical perspective and not just legal perspective was a swell. So the board is response pompel really for directing the organisation for providing oversight over the organization on also for protecting the organization on dh it’s acid, which may be held in charitable trust if the organization or non-profit is a charitable non-profit so with those three duties and part of the protection, the protection, the other part of the p uh, is planning is the board is responsible for planning the direction of the organization as well. So in meeting aboard fiduciary duty, the duty of care, the duty of loyalty and duty of obedience, the board has really got to be active in terms of attending meetings in terms of providing oversight over the financial activities for the organization and part of that is regularly receiving financial reports that speak to the financial health of the organization and boards must understand how to read those financial statements, maybe not with the same type of precision and detail that people might be looking at it, but certainly with the level of understanding that they can react appropriately when it’s clear to an ordinary, prudent person or an average reasonable person that the organization may be facing some sort of financial difficulty. Gene, is there any obligation or maybe it’s just ah, good idea that that a non-profit actually provide some training two board members in reading financial statements, i think that’s absolutely true had tony, and that might be part of the duties of executive director or ceo of the organization to facilitate that type of board development and where there are no staff members, certainly up to the president or chair of the board and the cfo or treasure training the board to get, um, comfortable in reading financials and regularly encouraging board development and facilitating it as well, i think are very, very important part of a gn officer’s duties and since you mentioned training, what about new board members? So we just talked about little you just explained for us the training on reading, financial statements, but what what else should a non-profit the organization itself be doing to support new board members who are who have just joined the organisation? I think i think governance committee, if the board is large enough to support such a committee or the board it stuff, has got to be involved in board development in four areas. First, in the recruitment of directors, clearly you have to select the right people who are willing to serve the government functions of the organization. You’re not just picking based on how much fund-raising they could do or how, how involved they are, maybe as volunteers in the activities of programmatic activities of the organization, but you really want to pick people who are capable and who want to exercise their government studio orientation is the next part, and i think that what you were speaking about, bringing new board members in and making sure that they are aware of things like the governing documents of the organization, it’s articles of incorporation and its by-laws these air documents that shouldn’t just sit on the shelf because part of the duty of obedience or the one of the fiduciary duties of the board is to operate in compliance with the applicable laws, including the organization’s internal laws, which are usually documented in the articles on by-laws and maybe other policies, like a conflict of interest policy, whistleblower policy, etcetera, orienting the board with respect to our new board, members of respected e organizations, internal laws and general fiduciary duties. I think it’s really important than aboard handbook with a job description with boarding stations and an understanding of what the organization does, what its mission is, programmatic activities. All of that is really important and actually that’s really important on the recruitment and as well. But once the new directors in there, they should have a board manual aboard book perhaps a mentor on the board to help guide the organization through then regular training’s after that. And and jean, you said there are four elements we’ve covered to recruitment and orientation. I’m goingto interrupt you for a moment because we have a call on line one eyes this mary-jo hi. Hello. Thank you for taking mary. Welcome to the show. You have a question for jean? I d’oh. First, i want to thank you for a dressing that new nine, ninety and new filings with the irs. That was great. Have excellent. Thank you very much. What’s your question for for jean? Well, i struggle sometimes with board expectations, and i find that some, uh, some boardmember tend to get very, very involved in into sort of business that they don’t necessarily need to be involved in, and the others are completely absent. And you started to talk about orientation and group recruitment, and then i lost the rest of it. I’m wondering how to sort of establish the boundaries, and andi really get them involved in things you want them to be involved in. So we’re talking really about the organization setting expectations for its its board members now, yeah, gene, how how should the organization be doing that? That may be one of the most difficult questions i fielded, and one that that many, many non-profits struggle with the relationship between the executive director of the board is a critical component to an organization being able to further its mission. Effectively and efficiently and when you have a brand new organizations a little bit easier to do because we consent outboard expectations and on the recruitment side so once you bring in boardmember is they have an idea of what their expectations maybe so in your recruitment materials job description, sort of the boundaries of of where director’s duties are and where they stop and where the manager executive director’s duties are and where they stop and where there is some overlap that can all be established. It’s still there’s still a lot of grey and overlap between governance and management that’s not an easy thing, but it’s easier to do with a new organization within existing organisation. It’s really tough? I don’t have a quick, snappy thirty second answer to that, but this may be a time when a consultant or an attorney who’s got experience in government who can speak to the board about its legal duties and its roles will be ableto, i think, helped define the board duties and see that it will help director see that they’ve got a lot on their plate without infringing in the areas of day to day management, which really belonged to executive director still may have a third party in there. Yeah, having having a consultant can really help again. This is with a more established organization, that’s been running and that’s been having difficulty with this. The board may not be willing, teo respond so easily to an executive director who says, well, you’re infringing on my territory this is where the boundaries should be because executive director really serves at the pleasure of the board on. So the board may be a little uncomfortable receiving directions from from the mary-jo when it comes from an outside consultant, and sometimes when it comes from from a lawyer, it can hold a little bit more authority, and it might be treated a little bit more objectively. We see the same thing actually gene in in fund-raising there are things that consultants khun persuade boards off that the ceo executive director is just unable to mary, i want to thank you very much for your question. Wei need teo. We’re gonna take a break, and when we return, jean takagi will stay with us. You’re listening to the talking, alternate network, waiting to get you thinking. Hyre i think, duitz cubine are you stuck in your business or career trying to take your business to the next level, and it keeps hitting a wall? This is sam liebowitz, the conscious consultant. I will help you get to the root cause of your abundance issues and help move you forward in your life. 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Two one, two, nine, six, four, three, five zero two for a free consultation. That’s lawrence h bloom two, one two, nine, six, four, three five zero two. We make people happy. You’re listening to the talking alternative network. Schnoll i’m the host of tony martignetti non-profit radio, and i’m joined by jean takagi. Gene, we got another call on the brake, so we’re goingto talk. Teo stacy, you with us? Stacey stacey, welcome to the show. What’s your question for jean? Hi, i i i work for a small non-profit and he was mentioning about the board. And i’m wondering when you’re starting up a nonprofit, is it wise to have a mix of professionals on your board like a mix of professionals, diverse backgrounds. So, like, ideally, what types of professionals would you pick one? I got ten member board of a small non-profit, you know, from, like, lawyers, the financial planners like who were the people who are important to be on that board? Thank you, stacie. Thank you, stacy. So that question jean really goes to recruitment. The first of the four things which i hope we get to. What about that diversity on your board? In recruiting, i think. That’s a great consideration. Teo, bring to the table. When you’re founding members, decide on who can you talk a little bit louder, please or move. The phone may be closer to you. Sure. It’s just a little bit, but yes, it is. Thank you. Great, i think it’s great tohave a skills matrix when you’re recruiting board, wrecked your board on dh if that’s possible. If you have enough recruits so that you can be selective and you can get some professionals in various areas, i think that would be ideal having somebody with an accounting background, perhaps somebody with an investment background, somebody with a legal background, but somebody who worked in the nonprofit sector before, perhaps, and fund-raising perhaps as an executive director, those would all be ideal individuals have diversity in other areas. Besides, skills may also be important diversity, so that you include perhaps some, some segment of the beneficiaries that your charity serves. Having them represented represented on the board can bring a diversity of issues to you as well. So i think it’s ideal tohave have those girls, major, but sometimes it’s a luxury to have all those people, because on top of all of these things, you need people who are really willing to fill their duties, their legal duties as boards of directors and be diligent about providing oversight over the organization, not just financial oversight, which we’ve been focused on so far, but definitely programmatic oversight because after all, non-profits aren’t existence to make a profit. The financials are really important, but on lee so faras they’re there to help fulfilled the charitable mission is effectively and efficiently as possible programmatic oversight ultimately important for her board. Yes, they need thio love the work that you do in addition to having whatever professional expertise they do, they need to love your work. Thank you very much. Thanks, stacey. Thanks very much for your call. Thank you, jean. I hope we have time. Well, i’ll try to make sure we do have time. You had said there are four things to consider. Andi got through recruitment and orientation. Can you let’s continue? What else should organizations be conscious about board members? Great. Third way that an executive may be ableto help in board development is through training that we could talk about recruitment, then orientation and training is sort of the ongoing training that that executive director or board president may facilitate for the rest of the board on this could be done by a periodic distributions of materials to the board. If the executive chair comes across important information regarding governance, short, snappy articles regularly distributed board members may be really helpful, bringing in consultants we’ve already talked about once a year, having a consultant come in and talk ng about do sherry duties or specific duties with respect to finances or with respect to programmatic management or fund-raising having those people come in will generate more interest among the board, and those types of training would be good against again, often times it’s more helpful to bring an outsider in it. It’s, a volunteer that’s, great that’s great, so long as that person is qualified to give that training, but training the board, that’s, that’s the the third thing, and then the fourth thing which sort of overlaps with the training, which i think i’ve already discussed about, is to ensure that the board is added with adequately getting information before boardmember things about the actions that they’re going to take that board meeting so they need to get the information well in advance so that they can prepare for the board meeting and make informed decisions because that’s key to meeting their fiduciary duties. A guest on a previous show, jean had made the point that, ah, lot of the administrative work should be done in advance, so that board meetings can actually be more engaging. And there can be people, maybe guest speakers, at a board meeting. But not to lose sight of the important administrative work. Just do as much of the administrative work is possible in advance. Jean in just the minute or so that we have left what’s your advice on ceos on boards? Well durney and it’s a difficult situation, but i think the general rule is that the ceo, our executive director, should not be on the board of directors. That would be the general rule, and there may be some exceptions to this, but i think even in the case of exceptions, it’s the best practices a best practice for organizations to work towards having a strong enough board that the executive does not need to be a voting member of the board. This does not mean that executive would not be invited to attend board meetings except when the board goes into executive session, but the reasons for this are really because of the conflicts of interests that executive director may have in serving on the board executives serves at the pleasure of the board, and the board is responsible for providing oversight over the executive, so typically in the for-profit sector with public cos you don’t see the ceo on the board of directors because they’re going to report to the board, and you have that check and balance there with new small non-profits sometimes you see the ceo or e t on the board, but again, i think it’s the best practice toe work to get to get that check and bound to have an independent board. My guest has been gene takagi non-profit attorney, you’ll find him at non-profit law blawg, dot com and also on twitter at gt a k jean, thank you very much for joining us on the show. Thank you very much for having me. I want to thank my guests today, stephanie straume and ken cerini and also jean takagi next week will be karen bradunas human resource is consultant. Your most coveted assets are the people who work for you. How do you attract the right people? Hyre them retain train and motivate them, and when it doesn’t work out, how do you move them on all done legally to keep your non-profits reputation safe, that’s next friday, september third, my guest for the hour will be carrying bradunas i want to thank creative producer claire meyerhoff line producer sam liebowitz and our social media is by regina walton speaking of social media, we have a facebook fan page facebook dot com slash tony martignetti non-profit radio head over there and like us, this is tony martignetti non-profit radio on talking alternative broadcasting. Please join us. Next friday, one p, m eastern.