By Latonya Slack, JD
AABLI Head Faculty, Board Leadership Program
Founder, Slack Global Consulting
Do you schedule annual physicals for yourself or for your family members? Most of us do because checkups are good things. But how many of us realize that annual checkups for our nonprofits are also a good idea?
Years ago, it was possible to file your articles of incorporation, send in your Form 990s every year and essentially ignore the health of your organization’s backbone, at least until something went wrong. Today, 501c3s experience more oversight from the IRS, increasing regulations and filing requirements from the Secretary of State and exposure risks from our online networks and social media. (For a list of 501c3 annual filing requirements, please see the California Association of Nonprofits Annual Compliance checklist here).
As a good board member, how can you best monitor your organization’s health? Job one is to check your bylaws. Are they up to date? Are they useful? Do you have a copy?
Many of my clients, rightly focused on their organizations’ work, typically ignore or neglect their bylaws until an alarming issue arises. Then everyone scrambles, only to find that their bylaws are outdated or perhaps to prescribe procedures that do not correlate with current practice. It’s worse if they outline a process that ultimately hinders or damages the organization. You can prevent this scenario by scheduling an annual review of your bylaws. This will help prevent future problems, and more importantly, will introduce clarity and consensus among your board members.
Your bylaws should be a living document, one that facilitates good communication and efficiency among board members. Anyone who reads them should be able to understand how your board operates. Many directors will admit they’ve never seen their bylaws, or if they have, they’ve found them unintelligible or even irrelevant to the daily work of the board.
Here are a few questions to ask when you pull out your dusty copy of the bylaws:
1) Are the bylaws written in English?
Yes, of course they are written in English. But far too many bylaws are written in what I call “legalese,” language that requires an interpreter for anyone without a law degree and years of training. Bylaws might follow the letter of the law, but they help no one if they can’t be understood on first read. If you find yourself scratching your head after you read a passage, then it needs a revision.
Many organizations use a modified bylaws version that quotes language taken directly from the California Corporations Code sections on nonprofit or public benefit organizations. While they may have been technically accurate at the time your organization was formed, these bylaws may not reflect current law or the best processes for your organization.
A) Have your bylaws reviewed by a qualified attorney who, at a minimum, should do the following: First, make sure your bylaws comply with current California code regulations. Second, ensure that the practices outlined in your bylaws reflect your current board’s needs and composition. A good attorney will take time to interview your board chair and board officers, learn about your organization’s history and make sure the board’s policies reflect your culture. He or she should also see to it that your board understands which code provisions are non-negotiable and which provisions allow flexibility. A great attorney will make sure that the language can be easily understood by the average eighth grader. Make sure you get your money’s worth.
B) Use your board policies and procedures manual to describe practices frequently carried out by the board that comply with regulations–i.e. the California Corporations Code and your bylaws–but that need some helpful pruning. For example, your bylaws may establish standing board committees such as finance, fundraising and executive. However, your board may occasionally create additional committees, such as temporary or ad hoc committees, as needed. Rather than changing the bylaws each time a new committee is formed, create a provision in the bylaws that describes how and when temporary committees are formed. Your policies and procedures manual could then provide more details, such as roles and responsibilities and membership guidelines. This eliminates excess verbiage in the bylaws while also allowing some flexibility. (A general reminder: no committee may substitute for the board or make decisions on behalf of the board; committees may only submit recommendations for consideration and approval by the full board.)
2) Are you following your bylaws’ guidelines for nominations and elections of board members and officers? This includes adhering to term limits, terms of office, officer roles and responsibilities.
Since the beginning of the 21st century, election guidelines have become the source of great angst and controversy. Make sure your provisions are clear, specific without being onerous, and fit your current practice and needs. Here is an example of a problem provision:
“I. Nominations for directors must be submitted on the third Tuesday of the second month during the second quarter of the fiscal year, in writing, to the current board chair by mail. Any submission received after this time must be approved by at least two current officers of the board, not including the chair, prior to the end of the third quarter.”
There may be a very good reason why this provision was created. It may even be the right prescription for a board. I suspect, however, that complicated provisions like this generally are not followed and can needlessly trip up an organization. Before you toss it out, though, ask if there was an intention behind it that could be better served by simpler, more direct language. In general, strive for transparent processes that appeal to the best in people while protecting the organization’s interests.
3) Do the provisions make clear when, where and how your board meets, makes decisions or votes? Are the situations that require or allow for exceptions clear? Are you following these guidelines regularly?
Your organization’s annual checkup should include a bylaw review. Make sure that someone–or preferably a committee–reviews your bylaws and recommends changes according to the process outlined for amendments to the bylaws. If your bylaws have not been updated in more than eight years*, you may need to seek outside assistance and start the new year with a completely new set. If you start by answering the questions above, you will ensure a healthy backbone for your organization.
*Eight years ago, the IRS made significant changes to the annual tax filing requirements that may impact your bylaws. The California Corporations Code has also made changes that allow for some communication via email, video and phone conferencing that were previously prohibited. For compliance, your bylaws will need updates to reflect these changes and possibly others.
-For a board governance “tune up” training, please contact Slack Global Consulting at Latonya@slackglobal.com.
This blog is not written by aabli.org or The African American Board Leadership Institute. The author is solely responsible for the content.