Governance Archives - Page 3 of 6 - Spokes

Can the Executive Committee determine the ED’s pay?

January 14, 2024 by Michael Simkins

Our bylaws state that the Executive Committee has full authority/responsibility to review the CEO’s performance and to set compensation, and that the Board “shall be informed” of the Committee’s decision. Is this OK?

Technically, the answer is yes—assuming that all members of the Executive Committee are, in fact, directors. Even so, the board as a whole still has responsibility for the process and outcome.

That said, it’s generally recommended to have a transparent and fair process for determining the executive director’s salary. While the executive committee certainly may play a role in salary discussions, it’s often advisable to establish a compensation committee or involve the full board in the decision-making process.

Having a broader group involved can bring diverse perspectives and ensure a more objective approach to determining the executive director’s salary. This approach is in line with principles of good governance, accountability, and transparency, which are important for the credibility and effectiveness of nonprofit organizations.

Two things to keep in mind:

Although the IRS does not provide specific dollar amounts or an acceptable range of compensation levels, they stipulate that compensation must be reasonable and not excessive.“Reasonable” is defined as the value that would ordinarily be paid for like services by like enterprises under like circumstances.
Nonprofits filing IRS Form 990 must describe the process they use to approve executive compensation as part of the nonprofit’s responses on the annual return, IRS Form 990, Part VI, Section B, line 15.

Worker Self-Directed Nonprofits

December 17, 2023 by Michael Simkins

Someone recently contacted Spokes to say, “I’m thinking of starting a worker self-directed nonprofit. Can Spokes help me?”

A worker self-directed nonprofit? I’d never heard the term. I know about public benefit nonprofits, mutual benefit nonprofits, and benefit corporations, but this inquiry required some research!

The Sustainable Economies Law Center describes a self-directed nonprofit as a sort of cross between a worker cooperative and a 501(c)3 nonprofit. Specifically, it defines a worker self-directed nonprofit as,

a nonprofit organization in which all workers have the power to influence the programs in which they work, the conditions of their workplace, their own career paths, and the direction of the organization as a whole.

In general, a worker cooperative is “democratically managed business that is owned and controlled by the workers.” California corporation code has specific provisions for the formation of a for-profit worker cooperative. California code also has specific, separate provisions for incorporating as a nonprofit. As far as I have learned, California code does not include explicit provisions for something called a worker self-directed nonprofit.

I have lots more to learn on this subject, but it’s intriguing to think about how one might structure a nonprofit within California’s current code that might mimic or embody key features of a worker cooperative such as election of the board of directors. More to come on this topic, but in the meantime, check out these resources:

Can the treasurer be the bookkeeper?

October 8, 2023 by Michael Simkins

A new nonprofit was struggling to put together its first board of directors. The organizers had contracted with someone to be the bookkeeper and they wondered if it would be acceptable to have that person also serve on the board as the treasurer. The answer: maybe, but it might not be the best idea.

One issue is conflict of interest. Directors of nonprofits are not to benefit financially from their role on the board. So, even if the bookkeeper were a director but not the treasurer, if her firm is paid to do the bookkeeping, that could easily be seen as a conflict of interest. That might be mitigated if the firm did the bookkeeping pro bono. Another possible mitigation is to get bids from several bookkeepers and, if the bookkeeper’s firm is willing to do the work for significantly less, then that also might mitigate the conflict. In the latter situation, the board would want to clearly document the research that was done, and the bookkeeper would recuse herself from participating in the decision to contract with her firm.

A second issue to consider is that a fundamental part of the treasurer’s responsibilities is to provide financial oversight. So, if the treasurer is the bookkeeper, he/she is overseeing him/herself. In that case, it would be prudent to put a structure in place to ensure oversight. For example, the board might formally appoint another person to be the Chief Finance Officer and provide a written description of the CFO’s duties, which would include oversight.

The board also needs to keep in mind that if the organization is paying the director/bookkeeper, then that person becomes an “interested person.” In California, no more than 49% of the board of directors may be interested persons.

Finally, whatever arrangements are made, the board would be wise to put in place some basic internal controls. Here are two useful resources on that topic.

Executive Committee Membership

March 9, 2023 by Michael Simkins

Can someone be on the executive committee who is not a member of the board of directors?

It’s an interesting question. The short answer is, “Perhaps, but probably not.” As can so often be the case, it depends on the situation. Here are things to consider.

Look at your bylaws

A great place to start is to read your bylaws. What do they say about committees? Do they specify that there is an executive committee? Do they say who should be on it? Do they say what the executive committee is supposed to do?

For example, I recently was helping an organization whose bylaws said nothing about an executive committee, but they did include a provision that the board could establish committees by resolution, and that “all committees have the full authority of the board” (italics mine).

Board committees

The next thing to consider is the type of committee. There are two types—board committees and non-board committees. With a few exceptions, the board may delegate authority to board committees. According to California law, all members of board committees must be directors.

On the other hand, membership on non-board committees is not restricted to directors. These committees, also called advisory committees, can serve a variety of purposes. As that name implies, they can provide counsel to the board. The board might also assign various tasks and responsibilities to them. For instance, a non-board committee might develop fundraising plans or be responsible for volunteer training. Because non-board committees have no legal authority to act in place of the full board, anyone may be a member. Non-board committees are often used as a way to engage additional people in the work of the organization.

Returning to the example above, since the organization’s bylaws clearly state, “all committees have the full authority of the board,” any committee established in the organization would be a board committee. Only board committees can make decisions on behalf of the organization, and all members of board committees must be directors.

So, what’s the answer?

If the board has delegated authority to the executive committee, then all members of the executive committee must be directors. Certainly, others might be invited to attend executive committee meetings and/or provide input, but such people are not members of the committee and do not have a vote on motions or decisions. Theoretically, a non-director could be a member of the Executive Committee, but only if the Executive Committee was given no authority to act. In such circumstances, that executive committee would, in fact, be an advisory committee. And what would be the sense in that?

And don’t forget…

State law trumps your bylaws. If your bylaws include any language that suggests non-directors can be members of your board committees, it’s time to revise your bylaws.

References

Managing Conflict

March 28, 2022 by Spokes For Nonprofits

Do you have advice about how to manage conflict on our board? We seem to be in two camps and can’t agree on what to do.

Conflict is bound to arise when a group of people is involved in a common endeavor. It’s not a bad thing. In fact, differing opinions can lead to creative solutions. On the other hand, serious and unresolved conflict can cripple an organization. Here are some suggestions for preventing, managing, and resolving conflict gleaned from some expert resources.

Pointers

In her article “Moving From Dissonance to Harmony: Managing Conflict on the Board,” Jill Sarah Moscowitz offers these basic pointers:

Start by reminding yourselves of your common interest in furthering the mission of organization
Identify the key issues. Even if they seem obvious, take the time to label them and write them down.
Begin with facts rather than assertions.
Avoid taking about “my position” versus “your position.” Instead, seek out your common interests. What do you all want to see accomplished.
Be truly curious. Focus more on listening than having the answer.

Face-to-Face Communication

Writing in “Managing Conflict: A Guide for Volunteer Boards,” E. Grant MacDonald emphasizes that “Confronting a conflict situation almost always can benefit from face-to-face communication.” He suggests holding a series of meetings and offers these recommendations:

Involve a trusted third party to facilitate the meetings.
Insist on confidentiality.
These are private meetings, not board meetings, but they are not secret meetings.
Make sure everyone knows that no decisions will be made in these meetings that bind the organization. The goal is for the parties to agree on recommendations that they will make to the board at large.

Avoiding Conflict

MacDonald also offers these ten practices to help avoid unnecessary conflicts in the first place. Many of them can be part of your board development activities.

Practice good interpersonal communication.
Operate with a strategic plan.
Clarify roles and responsibilities.
Help develop a skilled chairperson.
Learn about conflict resolutions processes.
Establish a code of conduct for directors.
Encourage performance evaluation.
Implement a grievance procedure.
Celebrate agreements and new understandings.
Look to gender and cultural differences as a way out of a mess.

References:

Moving From Dissonance to Harmony: Managing Conflict on the Board

Managing Conflict: A Guide for Volunteer Boards