Disrupting Non-Profits -- Part II

 

Disrupting Non-Profits – Part II

Empowering Contributors: The Vital Role of a Content Contribution and Payment Policy for Nonprofits

In the dynamic landscape of nonprofit work, passion fuels purpose, and volunteers are the lifeblood of advocacy. It’s time for non-profits to assign value to the stories and pictures contributed by these volunteers, people impacted by your work, and donors that you use to “sell” your organization in marketing and fundraising publications and social media posts. If amateur college athletes have a right to be paid for the use of their images and stories in marketing their institutions, why not other people on whom you rely to frame your institutional narrative and define its impact for supporters?  Having a well-defined content contribution and payment policy is a strategic move toward living your organization’s values and fostering collaboration, transparency, and fair recognition.

Here's why every nonprofit should consider adopting such a policy:

1. Honoring Contributions:

At the heart of every nonprofit are the individuals who lend their time, expertise, and personal experiences to advance the cause. A clear policy that assigns a monetary value to these contributions signals that the organization honors these contributions and the people who make them, creating a culture of appreciation and respect.  Allowing each individual to choose whether to donate or accept payment for the content or images they allow the organization to use  accords everyone the dignity of both knowing the value assigned to their contribution and the freedom to choose to make it a gift.

2. Encouraging Diverse Voices:

A content contribution and payment policy encourages a diverse range of voices to participate in shaping the organization's narrative. By choosing to offer individuals compensation for their expertise, personal stories, or specialized knowledge, nonprofits open the door to a wealth of perspectives that might otherwise remain unheard. Not everyone can make gifts of their talent or their time.  Paying for content or formally recognizing the gift of content as an in-kind contribution assists the organization in assuring that its work is “authorized” by those directly impacted by the work.

3. Quality Content Creation:

Compensating contributors for their ideas and words , whether they are captured in  articles, blogs, or speeches, or offered as advice in a meeting, inherently promotes a commitment to quality. Individuals are more likely to invest time and effort in creating impactful content when they know their contributions are recognized and valued.

4. Transparency Builds Trust:

Adopting a payment policy adds a layer of transparency to the organization's operations. Contributors, volunteers, and stakeholders appreciate knowing the criteria for compensation, the approval process, and the budget considerations. This transparency builds trust and strengthens the organization's reputation.

5. Legal and Ethical Compliance:

A carefully crafted policy ensures that the organization remains compliant with legal and ethical standards. It sets clear boundaries for compensation, avoiding potential pitfalls related to labor laws, intellectual property, and regulatory requirements.

6. Strategic Budgeting:

Establishing a budget for acquiring intellectual property allows nonprofits to allocate resources strategically. This not only helps to fund fair compensation but also ensures financial sustainability by preventing unforeseen expenditures.

7. Empowering Decision-Makers:

Delegating the responsibility of approving agreements and compensation to a designated individual streamlines the decision-making process. This ensures consistency, efficiency, and adherence to the established budget and payment scale.

8. Mitigating Risks:

The policy serves as a proactive measure to mitigate potential risks associated with content creation and compensation. Clear guidelines help prevent misunderstandings, disputes, or legal complications, safeguarding the organization's reputation.  Coupling the policy with an approved licensing agreement and a uniform payment scheme to be signed by all individuals who agree to provide content or images further minimizes risks.

9. Reflecting Organizational Values:

A content contribution and payment policy is a tangible expression of the organization's values. It communicates to contributors, staff, and the community that the nonprofit is committed to fairness, inclusivity, and ethical practices.

For any nonprofit, adopting a content contribution and payment policy is a strategic investment in the people who make the organization and the nonprofit sector thrive. It empowers contributors, enhances organizational credibility, grounds the organization’s Diversity Equity and Inclusion (DEI) work, and ultimately contributes to the success of the nonprofit's mission. In short, the returns on "leading the market" by adopting such a policy and the licensing agreement necessary to implement it make it worth serious consideration by any organization currently "using" its donors and volunteers to sell the organization and convey its impact by sharing their stories and themselves.

Starting A 501 C3 Nonprofit in Virginia-- Or Not ...

Launching a 501c3 Non-Profit in Virginia

Answers to Some Questions by Claire Guthrie Gastañaga[1]

 Should I start a new non-profit and, if so, what kind?

Before you start, look at this flow chart published by the Minnesota Council of Nonprofits and ask yourself if starting a non-profit is really necessary or are you able to pursue your goals by investing your time, talent and treasure in an existing organization?  Once you’ve asked yourself those questions, ask whether the organization is to be charitable, educational or scientific or a social welfare/advocacy organization. If the latter, you would want to organize as a 501c4 rather than as a 501c3 (that's a topic for another day).

 Is a  501c3 nonprofit a corporation?

A nonprofit is an organization first. It can be an unincorporated association but generally the first step is to form a corporation. That establishes some limits to individual liability. To form a corporation and do it in a way that means the IRS will affirm the organization’s status as a 501c3 tax-exempt non-profit organization, requires the organizer(s) to start with a clear purpose that will meet the definition of a public charity that is operated exclusively for an exempt purpose.

Here's how the IRS defines exempt purposes: “The exempt purposes set forth in Internal Revenue Code section 501(c)(3) are charitable, religious, educational, scientific, literary, testing for public safety, fostering national or international amateur sports competition, and the prevention of cruelty to children or animals.  The term charitable is used in its generally accepted legal sense and includes relief of the poor, the distressed, or the underprivileged; advancement of religion; advancement of education or science; erection or maintenance of public buildings, monuments, or works; lessening the burdens of government; lessening neighborhood tensions; eliminating prejudice and discrimination; defending human and civil rights secured by law; and combating community deterioration and juvenile delinquency.”

Once you have your exempt purpose clearly in mind and you’ve satisfied yourself that there is no better alternative, you are ready to develop and file articles of incorporation with the State Corporation Commission, write by-laws, ask the IRS for an employer tax ID number, and register with the Virginia Department of Agriculture and Consumer Services so you can solicit funds.  After that, you’ll want to file the paperwork to get the IRS to recognize your status as a tax-exempt 501c3 organization. 

 Can we raise funds before the IRS has recognized our tax-exempt status as a 501c3?

You can raise funds once you’ve got your paperwork in order and it is clear your organization is operated exclusively for an exempt purpose. Nonetheless, some donors who want to be able to take tax deductions for their contributions are hesitant to give before you’ve received your recognition letter from the IRS. This is particularly true of foundations. Note, however, that 86% of taxpayers now take the standard deduction and don't itemize, so they may not care about whether their contribution is tax deductible.

You should have an attorney review your paperwork before any filing with any state or federal agency. Dunlap Law, where I'm a partner, offers flat fee and subscription services for non-profits. Fill out the firm's Vital Signs Checkup to get started. The Greater Richmond Bar Foundation matches non-profits with pro bono attorneys. https://grbf.org

Who does the work when we first get the non-profit organized?

A start-up organization usually doesn’t have paid staff but rather has a board of directors that is responsible for both operating the organization (i.e., doing the staff work to provide services, etc.) and governing it.  This is called a “working board.” 

Sadly, at this stage, it is often difficult to do both jobs well, and the failure to address governance issues can keep the organization from ever gaining stability and outgrowing the start-up phase of the non-profit life cycle.

Can we hire paid staff?

The most important step toward becoming a mature organization is hiring staff to do the day-to-day work, allowing the board to focus on longer-term strategy and truly be purpose-driven.

 

Here is a link to a publication on the 6 competencies a non-profit executive director should have: https://boardsource.org/ceo-core-competencies/?utm_campaign=Resources&utm_content=221689229&utm_medium=social&utm_source=linkedin&hss_channel=lcp-30636

 

Can charitable 501c3 profits advocate for issues? Can they lobby legislators and executive branch officials for policy change directly or through their members?

YES! And YES!

But there are limits and requirements. Key resource: Bolder Advocacy, https://bolderadvocacy.org/advocacy-defined/

 

Resources

Handbook for Starting a Nonprofit

https://www.minnesotanonprofits.org/resources-tools/publication-detail/handbook-for-starting-a-successful-nonprofit

Alternatives to Starting a Nonprofit (flow chart)

https://www.minnesotanonprofits.org/resources-tools/starting-a-nonprofit/alternatives-to-starting-a-nonprofit

 Working Board vs. Governing Board

https://www.nmblstrategies.com/blog/key-differences-board-of-directors

 What’s the difference between a working board and a governing board?

https://www.youtube.com/watch?v=gtWIoQLbPAg

https://www.compasspoint.org/board-cafe/working-board-vs-governing-board

https://www.nonprofit-knowhow.com/blog/working-board-vs-governing-board

 Seven Life Cycles

https://www.gcn.org/articles/The-nonprofit-lifecycle-A-model-for-making-smart-decisions [take the quiz]

 Purpose-Driven Board Leadership

https://boardsource.org/research-critical-issues/purpose-driven-board-leadership/

https://ssir.org/articles/entry/the_four_principles_of_purpose_driven_board_leadership?utm_referrer=https%3A%2F%2Fboardsource.org%2F#

 

Legal perspective on Purpose-Driven Boards

https://nonprofitlawblog.com/boardsource-putting-purpose-first/

https://nonprofitlawblog.com/__purpose-driven-board-leadership/

https://nonprofitlawblog.com/more-on-purpose-driven-board-leadership/

 Board’s Role in Advocacy – Stand for Your Mission

https://standforyourmission.org/advocacy-your-board/

 

 

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[1] This blog is not intended as legal advice but is information offered for educational purposes.

 

Disrupting Non-Profits -- Part 1 Compensating Board Members

 

By Claire Guthrie Gastañaga

If we are serious about non-profits being or becoming equitable and inclusive organizations, it is time to disrupt some of the traditional beliefs about how non-profits are governed or operated.

Let’s start with the accepted belief that every board member must be a volunteer … that non-profit board members may not be compensated. 

There is no law against paying non-profit board members to serve. Virginia non-stock corporation law says that "[u]nless the articles of incorporation or bylaws provide otherwise, the board of directors may fix the compensation of directors." The law also says such compensation must be "reasonable." 

So the requirement that directors serve without compensation is usually written into the organizational by-laws or articles of incorporation, not imposed by any outside legal mandate.  And, that means that the policy can be changed by the organization consistent with requirements for amending the by-laws or articles of incorporation.

Of course, there are costs associated with choosing to pay board members in addition to the amount of compensation you pay.  The most significant cost of choosing to pay board members is potential exposure of the individual and organization to financial liability.  Both the federal law and most state laws now give immunity to members of boards of non-profits but only if they are not compensated.  Compensating board members would mean needing to indemnify and insure against this liability.

In Virginia, for example, uncompensated directors have blanket immunity from civil suit related to their directorships.  Therefore, a decision to compensate non-profit board members in Virginia means that the immunity from damages would be limited to amounts over the amount of compensation received by the director in the 12 months preceding the act or omission resulting in liability. 

No one can dispute that there are also significant benefits to the organization that come from having people on the board who represent the communities that the organization serves -- people who don’t always have the independent means or paid time off from their work that allows them to donate their time to helping govern an organization. 

One principle of purpose-driven boards as articulated by BoardSource is that the organization’s “power and voice must be authorized by those impacted by the work.” It is difficult to know how this can be accomplished if those directly impacted are not able to serve on the board.

Boards of non-profits that are serious about expanding their boards beyond the traditional philanthropic model of individuals able to donate their “time, talent, and treasure” and include members of the communities they serve should be considering offering to pay people to serve on their boards (and reimburse reasonable expenses) so that people who are not financially able to donate their time can still choose to contribute.

Here’s an example of a model by-law provision that could allow a board of a Virginia organization to adopt a policy of compensating board members:

 Section __. Compensation

Directors may receive reasonable compensation for services rendered as members of the Board and may be reimbursed reasonable amounts for travel and other expenses incurred in attending to the affairs of the organization as authorized by the Board. Any policy authorizing such compensation and reimbursement of expenses shall be set forth in a resolution adopted by a majority vote of the Board that shall include an affirmative statement that the policy has been adopted after due consideration of the legal and policy issues raised by adopting such a policy including any limitation on immunity afforded by Section 8.01- 220.1:1 of the Code of Virginia or federal law.

Boards considering moving ahead with adopting such an admittedly disruptive policy should:

1)   Articulate why they are choosing to compensate board members and explain how doing so will benefit the organization.

 2)  Review all the implications of adopting this policy change with the organization’s legal counsel, accountants, and insurance agent to ensure that the board fully understands all the legal and policy implications of the change. Clarify whether a by-law change or restatement of the articles of incorporations is needed and, if so, what procedures must be followed to make such an amendment. Ask if the organization needs to add or revise policies indemnifying board members.  Review the impact of the change on the organization’s insurance.  An organization can insure against any increased exposure to liability. Remember that the federal and state statutes granting immunity were mostly adopted at a time when insurance companies were charging non-profits very high premiums and the immunity provisions were intended to reduce the financial cost of directors’ and officers’ liability policies. 

3)   Refrain from offering compensation or expense reimbursement only to some board members whom someone decides “need” the money. Don’t make board members “apply” to be compensated (asking for reimbursement requests/receipts is okay). Some board members will accept compensation or reimbursement, some will choose not to accept, and some will accept one or both and donate the funds received back (perhaps that could be their chosen meaningful contribution for the year).  Offering payment (compensation and/or expense reimbursement) to everyone preserves the dignity of everyone. Make sure that the compensation and reimbursement are reasonable. Make sure board members understand the tax and other legal implications of any compensation/reimbursement policy for both the organization and the individual board members (for example, what needs to go in a 990 and what doesn’t; how can payments be structured to avoid disqualifying a board member from public assistance programs; what are the tax consequences to the individual board member).

4)   Advertise that the board has a policy of compensating and reimbursing board members and note how it impacts those willing to step up and serve who are from more diverse backgrounds and lived experiences than your board members have historically brought to your organization.

Bottom line, equity and inclusion require changing some of the “accepted” ways of doing business if the organization is truly to be a purpose-driven organization led that is “authorized” by those impacted by their work. If the organization’s lawyers reflexively counsel against adopting a compensation policy, remember that the board’s job is to decide what policy is right for the organization (having weighed the legal and “business” risks) and the lawyer’s job is to advise how the desired policy can be implemented legally.

References:

Should Non-Profits Pay Board Members?

https://charitylawyerblog.com/2019/08/26/should-non-profits-pay-board-members/

Compensating Non-Profit Board Members

https://nonprofitlawblog.com/compensating-nonprofit-board-members/

Should Board Members of Non-Profit Organizations Be Compensated?

https://www.asaecenter.org/resources/articles/an_plus/2015/december/should-board-members-of-nonprofit-organizations-be-compensated

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