Getting Together to Get the Work Done - ICNA Boredwork into BoardWorks Series:Getting Together to...

Getting Together toGet the Work Done

A Boredwork into BoardWorks Series

Creating effective group-workingrelationships in today’s world.

i A Boredwork into BoardWorks Series: Getting Together to Get the Work Done

Table of Contents

Introduction . . . . . . . . . . . . . . . . . . . . . . .1

I. Legal Overview . . . . . . . . . . . . . . . . . .2

A. Questions that can guide the decision-making process fordetermining the structure of an organization . . . . . . . . . . . . . . . .3

B. Tax Numbers . . . . . . . . . . . . . . . . . . . .4

C. Not-for-Profit Status . . . . . . . . . . . . . . .4

D. Articles of Incorporation . . . . . . . . . . .4

II. Corporate governance culture and a way of working together . . . . . .6

III. Individual considerations in selection of the initial and subsequent board members . . . . . . .7

Understanding legal structures for yourgroup can streamline your work.

© All rights reserved. Permission to copy or reproduce inany media, paper or electronic, may be obtained from theauthor upon written request.

A Boredwork into BoardWorks Series: Getting Together to Get the Work Done 1

Getting Together to Get the Work Done

A good idea, an important mission or anoble cause and not enough time orresources to make our dream reach itspotential cause most of us to give up orget help. When we find that there is morework to be done than any one person cando, we usually ask someone to help us.Then as the work grows or we find newwork to do, we ask more people to help.We start to organize our group to get thework done. People organize in many waysto accomplish the work that they considerimportant. When there is work to be done,we form committees, taskforces, ad hocgroups and advisory boards. Often wefirst form a committee, meet, and sharethe responsibility. And, at some point, thecomplications of multiple tasks,commitments of time and amounts ofmoney reach a critical level. Then thegroup decides that a more formal andpermanent structure is desirable. Thegroup will consider whether to affiliatewith another incorporated entity or form anew separate legal entity, a corporation.Incorporation is advisable when thecomplexity of the work has become suchthat using an ad hoc group or advisoryboard affiliated with another corporatebody is no longer workable or the workhas diverged from the original entity'smission.

Groups can decide whether a formal orinformal structure will work best byunderstanding the legal differences.Corporate boards, advisory boards andcommittees differ in both scope and legalresponsibilities. The unincorporatedcommittee or advisory group is withoutlegal capacity to enter into contracts orown property. Its responsibilities aremerely to advise or plan and carry outactivities or programs. It may give advice

and guidance but does not have legalexistence or governance authority. Theonly exception to this statement is acommittee, a commission, or a boardcreated by statute. An entity created bystatute has whatever power is granted bythe statute creating that body.

In clear contrast to an unincorporatedboard, a corporate board, as a board, mayhold or own property, may hire staff andgenerally act with the same legal standingas a person may act. That statementsimply means that any thing a person cando with legal standing, a corporate boardmay do unless there is a statutoryprohibition. The board of directors ortrustees as provided by the articles ofincorporation has the complete governingauthority for the corporation. Thecorporate board acts with all powersprovided by the state's corporation laws.Each board member has the individualrequirement to act in a fiduciary role forthe corporation as well as to act as amember of a corporate body.

The decision to incorporate should bemade with consideration of the group'sability and willingness to oversee allbusiness responsibilities. Anyincorporated entity, whether for profit ornot for profit must comply with certainlegal requirements. While those

Are these people a committee, a group, anad hoc task force, an advisory board, orcorporate board? How do you know?

requirements may be simple, they requiretimely and competent attention. Thedecision as to what organizationalstructure is best for the work should bepremised on a basic understanding of thelegal requirements of each. Let's look athow one community might decide toorganize to meet the lifelong learningneeds of the people who live there.

Joe noticed that he is hearing a languagein addition to English in his store. Hethought about the increasing number ofpeople who are speaking Spanish andrealized that they are good customers. Athis service club meeting he asked abouthiring a clerk who speaks Spanish. Theinsurance broker commented that shewould like to take Spanish. But no oneseemed to know how to organize a classfor business people to learn basicSpanish. Finally, the truck repair shopowner suggested talking to the Extensionoffice because his wife took a class onmoney management organized byExtension. And so the Extension officewas asked to join the effort. While doing aneeds assessment, the Extensioneducator identified a number of learningneeds in the community. The educatorwas also pleased to find a number offinancial resources to create a communitylearning network. So as the communitypulled together to create a Utopia CountyLearning Network, the group had to thinkthrough how to organize to accomplishthe tasks needed for a vibrant learningnetwork. They decided to make sure theyunderstood the differences betweenbeing incorporated and not beingincorporated. They read the followingdiscussion:

I. Legal Overview

Each state has its own set of statutesproviding for the creation of corporationsand governing corporate existence. Acorporation is created when therequirements for incorporation have beenmet for the state in which theincorporation will take place. An Indianacorporation is supervised by the Secretaryof State and can only exist while incompliance with the statutes andregulations of Indiana Corporation law.While states other than Indiana may havesimilar statutes, they also have theirunique provisions. The model codes areonly recommended models and have notbeen uniformly enacted by the fifty states.The federal provisions that relate tocorporations are, for the most part, tax,commercial trade and trust statutes andregulations, or concern the rights ofindividuals relating to discriminatoryissues. The relationship between thestate requirements and the federal iscomplicated for special industries andcertain activities. For example, the not forprofit corporation that is a foundation hasdifferent tax rules than othercorporations. A not for profit corporation'sstatus as a 501-C-3 is determined by theU.S. Internal Revenue Service. If acorporation is formed in Indiana as a non-profit group, the corporate board has toauthorize application for a 501-C-3 statusand then must remain in regulatorycompliance to maintain that status.

States and the federal governmentexclude corporations from certainbenefits and rights by various statutes.The question of how any of those apply toa specific corporation or corporate activityis beyond the scope of this article andrequires the advice of a competentlawyer.

2 A Boredwork into BoardWorks Series: Getting Together to Get the Work Done


A. Questions that can guide thedecision making process fordetermining the structure of anorganization.

1. What is the "work" of theorganization?

2. Is the organization needed? Cananother organization do this work aswell or better?

3. Is there another organization thatcan partner with the new group toprovide the business and financialmanagement thus freeing the group tofocus on program and policy?

4. Has the group stated their specificpurposes or goals for the group'sexistence?

5. What are the lengths of time forthe existence of those purposes?

a. Long Term or Short termb. Are they short term but

reoccurring on a predictablebasis?

c. Will the reoccurrences be withina period of three years?

6. How complex are the activities tobe performed under the direction of orby this group?

a. Are the activities single events ormultiple activities?

b. Are the activities parts of variousprograms that are of an ongoingnature?

c. Are there liability and safetyissues?

7. Does the group need to handle money?

a. Own property?b. Hire employees?c. Raise funds from other

corporations?d. Purchase insurance?e. Receive grants from foundations

or other gifts?

8. Who are the core supporters? Who will provide the money to start?

9. Do the volunteers have adequate interest, energy, andknowledge to keep the corporation in good standing?

a. Who will do the businessplanning and legal work ofincorporation?

b. Who knows the requirements ofreporting and accounting tomaintain corporate status?

c. Who will do the paperworkmaintenance of the corporatestructure?

One way to think of a corporation as alegal entity is to imagine that it is aperson just like you are with the samerights and the ability to act. The twodifferences are: (1) a corporation lacks aphysical body, (2) a number of people dothe thinking and acting necessary toconduct corporate business. Acorporation is a legislative creation thatallows the right to a group of people to actwith a single or, in another word,corporate, identity. The corporation mayown property, hire staff, accept donations,incur debts, and have bank accounts thatare not the liability of the individual boardmembers except within their capacity as aboard member. One reason often given topromote the incorporation of a group is toreduce the exposure of individuals for thegroup activities. Desire to avoid legalliability is not a good reason toincorporate. Incorporation is not going toprevent many, if any, lawsuits. Lawsuitsare filed for reasons other than thedefendant's legal status. Additionally, inconsidering reasons to incorporate, anequally significant factor in potentiallitigation is the fiduciary duty of a boardmember to act in the best interests of thecorporation. A board member whocarelessly ignores the responsibility to

conduct the business of the nonprofit in acompetent and ethical manner incursliability. That liability is as great as if theorganization were not incorporated. Aboard member must avoid conflicts ofinterest and give the business of theboard adequate attention. For a boardmember to properly meet theresponsibilities of the fiduciary duty willtake a commitment of time and energy.Board service may include theresponsibility of dealing with unpleasantissues and disputes. Incorporation doesnot protect a board member from theconsequences of the member's personaldishonesty or negligence that results indamage to another. A decision to form acorporation requires careful balancing ofthe interests involved.

Passion to a cause and determination areimportant but are not sufficientjustification to form a new corporation.

B. Tax Numbers

If the group needs a tax identificationnumber, they may with permission, use anumber belonging to an affiliated orparent entity. The problems with the useof tax numbers by different groups areseveral. The most importantconsideration is that the entity, individualor corporate that obtained the number

has the legal responsibility for all use andtaxes due under the number. Any misusewill fall against the entity holding thenumber. If a corporation obtains a taxidentification number, then the boardcould in the event of misuse or fraudbecome individually liable for the paymentof taxes and penalties. This is becauseindividual board members have the fiscalresponsibility to pay taxes owed and to filesuch returns as the law requires.

C. Not-for-Profit Status

The legal status of a corporation inIndiana is determined at the time of filingthe required forms and information withthe Secretary of State. Indiana allows theincorporation of two basic classes ofcorporate entities, for profit and not forprofit. At the timing of filing of the Articlesof Incorporation the group declareswhether for profit or not for profit status isdesired. Members of boards of olderIndiana corporations may want to seekthe advice of an attorney aboutrestructuring of the corporation if theywere incorporated prior to 1935.

D. Articles of Incorporation

A common question is what should becontained in the Articles of Incorporation.The answer is not much more than theIndiana statutes require. The officialforms for filing to incorporate can beobtained from the office of the IndianaSecretary of State. If completed properlythey meet the requirements of Indianalaw. Indiana provides a statutory processto amend the articles of incorporation,but the amendment of the articles ofincorporation can be more cumbersomethan amending the By-laws. With lesspomp and documentation and with no


Understanding your liability versusresponsibilities can be critical.


filing fees, the By-laws can be amendedso that they better meet theorganizations' needs as needs, times, andstatutes change. The By-laws are theactual governance document of thecorporation. They are the rules foroperation and governance. They set outthe officers and board structure.

A corporation's By-laws are the third leg ofthe three-legged milking stool thatsupports the seat of power of thecorporation. The other two legs are thestatutes and the Articles of Incorporation.Another way to see this is with threeconcentric circles; state law as theoutermost, the Articles of Incorporationnext and the By-Laws as the innermostand smallest circle providing a clearstatement of the rights andresponsibilities of the members andgovernors of the organization. Inparticular, the By-Laws provide the actualand most detailed provisions for theoperation of the business of theorganization. The By-Laws are the internaldocument that will contain the basic ruleson how the corporation is to be run. Everyprofit or not for profit corporation musthave a set of By-Laws. Many of theprovisions cover relatively standardprocedural questions, relating toquorums, voting, officers, and boards.Other provisions may describe themembership and are specifically tailoredto the type of organization for which the

By-Laws are intended. Amendments tothe By-Laws are often made by vote of theboard of directors, unless the Articles ofIncorporation or the By-Laws themselveshave transferred that authority to themembership. The By-Laws can containvery specific or very general provisions forthe internal management of thecorporation. Typically, the By-Laws cover5 general areas:

The rights and responsibilities ofthe membership

The rights and responsibilities of the directors

The rights and responsibilities of the officers

Financial matters

Methods for amending the By-Laws

Each state has different requirements forthe degree of detail contained in theArticles of Incorporation and By-Laws. Thefollowing is a checklist of necessaryprovisions for use in preparing your By-Laws. These are recommendedprovisions.

Authority to designate thelocation of principal office ofcorporationAuthority to designate theregistered office and agent ofcorporationDate, time, and place of annualmembers meetingProcedures for special membermeetingsNotice and waivers for membermeetingsVoting eligibility requirements formembers and membershipclasses, if any

Quorum and votes required foractions by membersPowers and duties of thedirectors in the conduct of thecorporate businessNumber of directors Term of office for directors and eligibility requirements Date, time and, place of directors meetingProcedures for special directors meetingsNotice and waivers for directors meetingsQuorum and votes required for actions for directors Removing and filling vacancies of directorsEligibility to serve as an officerThe number of officers andlength of the term of officeRemoving and filling vacancies of officersDuties of the officers of the corporationBy-Law amendment procedures and...

Rules for the conduct of meetings can bea part of the By-Laws or the group candefer to Roberts's Rules of Order.

II. Corporate governance cultureand a way of working together

As people come together to work, eachgroup creates its own way of doing thingsand, in time, the group has grown its ownculture. For profit groups often appear tobe more aware of the corporate culturethan non-profit groups. The variousstudies of explanations for the "MotorolaWay" or other companies' corporateculture make interesting and helpfulreading for those who want to maximizenonprofit performance. Some lessons

from the profit making world aretransferable but a non profit boardmember is well advised to consider thegroup's purpose and values beforeassuming that what is good for businessis good for a community basedorganization.

But before the group begins to createtheir corporate culture, members of thegroup should take the time to understandgovernance and how the governance stylewill influence the nuances of thecorporate culture. An excellent discussionis reprinted here.

What is the role of governance?

In the aftermath of every "nonprofitmismanagement" news story is thequestion: Why didn't the Board dosomething? Yet the boards of the UnitedWay of America, Covenant House andothers did not do any less than mostnonprofit boards. The reality is that mostnonprofit boards are ineffective in theirgoverning function. Only when grossmismanagement occurs does a failure at governance come to the fore.

The overlooked reason is that theprevailing "team" model for therelationship between boards of directorsand their staff is only half of the story."Team" members are understood to bringdifferent skills and play different roles tosupport and build the organization,working toward common goals. But whileboard members should and do act assupporters and builders, they haveanother role to play as questioners andmonitors of the organization. As part ofthe team, the board stands with their well-intentioned organization as it operates ina demanding world. In contrast, in theirgoverning role, the board must stand



outside the organization and hold itaccountable to the public interest.

Both these roles--supporting andgoverning--are critical to effective work bynonprofit organizations. Rather than try toeliminate the contradictions and tensionsof their governance role, boards must findtechniques for strengthening theirindependence and creatively using thistension for the good of the organizationand the purpose it was created to serve2.

What is governance?

The two roles of support and governanceencompass different tasks. In the role ofsupporters board members strive toensure the success of the organization.Boards raise money, bring contacts andclout to the organization, provide specialskills such as in law or accounting, andact as ambassadors to the community.The many books, articles and seminarson the subject testify to the emphasis onhelping boards help--on strengtheningorganizations by means of boardassistance.

The governance role, on the other hand,has as its goal protection of the publicinterest. Governance responsibilities forboards include selecting the top executive(the Chief Executive Officer) andassessing his or her performance,reviewing and authorizing plans andcommitments, ensuring compliance withlegal and contract requirements, andevaluating the organization's work.

Both of these board roles are distinguishedfrom that of management, the province ofthe Chief Executive Officer3.

Two excellent resources for morediscussion and opportunities to learnabout board governance are John Carver,University of Georgia and the staff at theRobert K. Greenleaf Center for ServantLeadership. Robert K. Greenleaf spent agreat deal of time observing and thinkingabout how people organize to get theirwork done. Now, more than ever, the keyto accomplishing important communitywork is deliberate and constant attentionto structure and process. To be or not tobe a corporation is a question thatdeserves a broad based consideration.

III. Individual considerations inselection of the initial andsubsequent board members

Once the decision has been reached toincorporate the next critical step is theselection of the initial board members.The initial organizers may or may not bethe best choice of board members.Without attention to the selection of astrong board, the corporate entity maynever reach its potential for service.

There are two terrible reasons for servingon a non-profit board that also are themost common reasons stated. One, "thesomebody has to do it reason" is aninvitation to people who lack the skillsand knowledge to serve as the businessarm of the organization. Asking people toserve in ways that frustrate them and donot best utilize their talents is a mistake.Putting a great volunteer on the boardmay lose a great volunteer and somegood board members as well. The secondreason is "the honor" of the boardposition. Serving as a board member isnot about prestige, but about duty and

2, 3 Copyright (c)1998 Alliance for Nonprofit Management, 1899 L St., NW, 6th Floor, Washington, DC, USA 20036. (202) 955-8406. Distribution and reprinting permitted as long as this copyright notice is included. All Rights Reserved.

responsibility. It is not a token position forthe member to show up and rubberstampthe executive director. But neither does agood board member micro manage.Indeed, the times are changing and boardmembership is hard work. A boardmember has two duties that are mostoften described as a duty of care and aduty of loyalty. Some commentators haveadded the third duty of obedience to themission. This is an emerging discussionabout keeping the activities of anorganization true to its mission. The firsttwo have been imposed by law as well ascommunity ethics. The question ofwhether the organizations' activitiesfurther the mission has not been widelyexplored in the nonprofit communityorganizations. In Indiana, as many boardmembers have learned in the last fewyears, you have to understand how thelaw governs the corporate board and itsresponsibilities.

An invitation to become a board memberusually feels like a compliment.Somebody wants to work with you. Do youwant to work with them?

You will save yourself time and grief byasking a few questions about the boardbefore you agree to serve.

You and the Organization

What is the "the work" and do you believe in it?

Do the current programsaccomplish the work for whichthe corporation exists?

Have you had an opportunity toobserve the organization'sprogram activities firsthand?

Does the organization have astrategic plan?

Does the board regularly review the plan?

Do the Board and themanagement value and performregular evaluation of theorganization?

Money and the OrganizationIs the organization operatingwithin fiscally sound principles?

Does the board review andapprove the annual budget?

What level of attention does theboard give the financial situationof the organization?

Who is served by theOrganization?

Are those served well served?

Are they satisfied with theorganization?

Board QuestionsWhat is the board structure?

How does the board function?

Are there written descriptions ofthe responsibilities of the board,the members, and thecommittees?

How are assignments made?

Is there a policy and proceduredocument to handle conflicts ofinterest and to prevent such conflictsfrom being perpetuated? When was itwritten and is it up to date?

General Questions

Do you know the other boardmembers?

Do you know the executivedirector?

Are biosketches available for the key staff and directors?



What about you?Should you be a board memberor a volunteer? Do youunderstand the difference in the roles?

Do you know and are able tomeet the time commitments ofboard service?

Will there be board development?

Are you comfortable with theorganization's approach toopenness and inclusion?

Can you make decisions in trustfor the organization regardless ofyour own financial, political, andpersonal interests?

Can you build a mutuallyrespectful but independentrelationship with the other boardmembers?

Have you reviewed the followingdocuments?

The most recent annual report

The most recent audited financialstatement

The strategic plan and a long-range program and financial plan

A board organization chart

A staff organization chart

The conflicts of interest policyand procedure to disclose andhandle disclosure documents

The affiliation disclosure list ofthe board members

The directors and officers liability coverage

What are the fundraisingpractices?

What is the expectation for aboard member's participation infund raising?

Are you comfortable with thephilosophy and practice of theboard fundraising efforts?

Can you contribute the support infundraising efforts expected of you?

As the group considers potential boardmembers, these questions can helpmatch talents to positions. The reverse istrue for the potential members toconsider where they want to spend theirtime, where their interests and talents lie.When individuals work to their strength,the whole organization will be stronger.

These sections have presented the basicconsiderations for a group thinking aboutincorporation. The focus has been onthree areas: whether to incorporate, thecritical elements of the legal process ofincorporating, and who should be a boardmember. The decisional processhighlighted here is important and shouldbe undertaken with deliberation. Next wewill follow the Utopia County LearningNetwork as they explore possibleaffiliations and how to manage their workif they do not incorporate. That learningprocess will be described in Living theMission without a Corporation of OurOwn. Later, we will review themanagement of an Indiana not for profitcorporation with a closer look at thebusiness and reporting requirements thatare the result of federal and state laws.

Copyright © 2001, Linda L. Chezem, Boredwork into BoardWorks

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