10 Ways to Kill Your Nonprofit

Terrific article by Mark Hager and Elizabeth Searing, published in Nonprofit Quarterly (NPQ).  Check out the link for the full article – I highly recommend that all nonprofits read it as a warning of what not to do:

Summary – 10 Ways to Kill Your Nonprofit:

  1. Overwhelm it with liabilitiesWeighed Down
  2. Operate in the red
  3. Poison the revenue mix
  4. Dehumanize your donors
  5. Stay forever young
  6. Cut your connections
  7. Stain your reputation
  8. Underinvest in infrastructure to support volunteers
  9. Chase dollars into competitive spaces; drive way from your mission
  10. Think that “good” is good enough

Giving and Need – Opportunity Index and Giving Ratio

Giving and Need Map

This is a follow up to my post of April 15 regarding the comparison of giving and religious beliefs.

Also from the Chronicle of Philanthropy, check out the article and interactive map which compares an “Opportunity Index” with a “Giving Ratio.”  The overall conclusion is that more affluent regions have a tendency to be less generous in their giving.  Again, you find that the southern part of the US and the Rocky Mountain regions are more generous givers.

“Giving Ratio” for this article is the percent of income donated to charity, as compiled from IRS Schedule A itemized deductions (I’m not sure I want to know how they obtained this information).

“Opportunity Index” is a score assigned based upon the socioeconomic measurements of different locations.

Now, you should assume that these are very, very, broad brushstrokes.  The data is by no means comprehensive, and leaves a lot of unanswered questions.  However, it might be statistically significant enough to suggest a pattern, which is all that the article does.   The percentages are not disparate enough to provide much confidence in their conclusions (that wealthier people tend to give less, and vice versa), but it is interesting to see what the numbers say about different locations.  How does YOUR county fare?

A Mismatch Between Need and Affluence

Indiana Nonprofit Corporations – What is Indemnification?

Fancy - Question MarkFrom the email inbox:

Our nonprofit Board has been talking about getting D&O insurance.  Our bylaws says that the nonprofit must indemnify the Board of Directors.  What is indemnification, and why do we need D&O insurance?


This is a complicated issue that generates a lot of questions.

“Indemnification” and “Directors & Officers” insurance (also known as D&O or “errors and omissions” insurance) are related, but two separate things.

OK – here’s an overview of how each works:

First, it is important to note, that this information only applies to Directors & Officers issues and insurance.  General liability and specialty insurance (like sexual misconduct insurance) are separate types of insurance, and the benefits of those types of policies is not discussed, here.
Second, this only applies to Indiana nonprofit corporations, so if you are involved with a nonprofit in another state, check local laws.

1.  The State of Indiana (in Indiana Code 23-17-13-1(d)) provides protection for nonprofit organizations and their board members (not general members) for actions taken in good faith in the execution of their duties the normal course of their activities.

2.  It is important for the nonprofit organization’s bylaws to reflect this by adding indemnification language (Indiana Code and 23-17-16-1, et seq.), so that protection is acknowledged and enforced at the Board (organization) level.  Smart board candidates refuse board service with an organization that does not include indemnification language in the Bylaws.  (More on Directors & Officers insurance, in a minute).

— This means that if a Board member is sued for actions of the Board or of the organization, then the Board member is covered by Indiana law with the same protection provided to nonprofits.

— Further, this means that the nonprofit is required to defend (and pay for the defense) of a Board Member sued for actions taken in good faith in the performance of duties as a Board Member.

— Generally speaking, if a nonprofit organization is sued, the Board members are included in the lawsuit – by name – as a matter of course.  That’s just how the shot-gun approach to lawsuits works.

— By the way, this language is typical for all types of corporations – this is not just peculiar to nonprofits.  ALL formal organizations use (or should use) indemnification language  in the bylaws.

3.  A separate question is whether a nonprofit organization should purchase Directors & Officers insurance (D&O).

— Most of the time, if there is a claim, the purpose of D&O is to pay for the attorney to defend the lawsuit.   Generally, the State protection for nonprofits will prevent a claim from being successful, but will not prevent a claim from being filed (anyone can sue anyone for anything – but that does not mean that “anyone” will win).  That said, lawyers are expensive, so there is value in the insurance, from that perspective.

— However, there are instances where there might be a successful claim, and this is why D&O insurance is important.    This is usually in situations where a board decision has either consequences that affect someone’s livelihood or income, or has tragic consequences.  I use the example of an experimental aircraft club.  The Board’s decision to allow (or not) a particular experimental aircraft to fly into an event could have tragic consequences.  A more mainstream example would involve organizations that benefit “protected classes” – the young, the elderly, the disadvantaged, the disabled, etc.  A Board decision that has a negative impact on the life (or quality of life) of a protected class could result in a lawsuit.

— Another example would be a nonprofit that handles significant amounts of money or distributes a significant amount of money or assets that might be an attractive target for a lawsuit.  A typical use of D&O is for economic development organizations that work on development projects that can be worth millions of dollars.

— Small nonprofits that fit none of these trigger points might choose to forgo D&O insurance.  This should be a board discussion and a cost-benefit analysis (the cost of D&O weighed against the relative risk of a lawsuit)

Bottom line:

1.  Nonprofit corporations must have indemnification language in the bylaws.  While not legally required, it is considered bad practice and bad faith treatment of your Board Members to not have it.

2.  Nonprofit corporations might need D&O insurance, but that should be an analysis of the Board, based upon their activities and perceived risk.

Nonprofit Yoga Poses

Blue Avocado LogoTerrific article by Vu Lee in the latest Blue Avocado newsletter.

My favorite is “The Mountain of Emails” Pose.

Check it out:  Downward-Facing Budget and other Nonprofit Yoga Poses.

Blue Avocado is a look at nonprofits and the nonprofit world from the trenches of the Executive Director.  It has wonderful articles about boards, governance, executive directors, and both troubles and blessings found in each.  If you are a nonprofit board member, staff member, executive director or donor,  Blue Avocado should be required reading.