The Execupundit has a great suggestion to help boards keep track of official action over time. He notes (and I echo his experience) that Boards often do not remember official action previously taken – particularly if time has passed.
While it is every Board Member’s duty to be aware of the action taken at all Board meetings, we humans live “in the moment” and are not wired to stop and think about whether an issue has been previously addressed. In my experience as an attorney who advises nonprofit (and other) boards, I have witnessed more than one occasion where a Board will take action directly opposite to action taken only a few meetings previously, for the simple reason that no one remembers.
Enter the Board Historian, as recommended by the Execupundit. This person’s duties include keeping track of all official actions of the Board, and being ready, willing, and able to remind the Board of previous action taken.
I have worked with Boards that try to address the issue of “remembering official action” by keeping a running summary of all official board action, including the date, the action taken, and whether there were any dissenting votes. This is a good idea for use by the Board Historian.
The duties of a Board Historian can be expanded to include matters of Board and Officer dates of office and terms (including when terms expire) as well as a historic list of past officers (and terms of service), as well as the basic history of the organization (when founded, when incorporated, with copies of important documents, such as the Articles of Incorporation, Bylaws (including historic copies), and Exemption documents so that they can be easily accessed if and when needed.
If this sounds a lot like part of the Secretary’s job, you aren’t wrong (Check your bylaws to see whether your definition of the Secretary’s duties include keeping track of historic information). However, in practice the Secretary duties have been somewhat limited to just taking notes at meetings. Expanding the role of Secretary to include Historian – or having the Historian as a separate Board Office – is a continuous reminder of the importance of both knowing and remembering official Board Action.
Thanks for the suggestion, Execupundit – terrific idea!
If you don’t read the writings of Michael Wade, The Execupundit, I recommend you add him to your list – he writes thoughtful and intersting posts. I especially like his “First Paragraph” series and his “Find Something Beautiful Today” series.
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:
Overwhelm it with liabilities
Operate in the red
Poison the revenue mix
Dehumanize your donors
Stay forever young
Cut your connections
Stain your reputation
Underinvest in infrastructure to support volunteers
Chase dollars into competitive spaces; drive way from your mission
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?
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)
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.