Tuesday, May 31, 2011

Nonprofit Quarterly Addresses Issues with E-mail Votes

For any board taking votes by e-mail, this is an essential article, offered by the Nonprofit Quarterly:

Email, texting, Facebook, Twitter . . . these diverse modes of electronic communication and others have exploded over recent years. We are now able to communicate faster, cheaper, and with more people simultaneously than we ever have been able to before.

To busy nonprofit board members, whose schedules make face-to-face board meetings seem like a luxury, a new trend in nonprofit governance has surfaced that may run afoul of the law – the “vote” by e-mail option.

Responding to the difficulty in wrangling a geographically diverse and time-crunched board, many nonprofit organizations are now allowing directors to “vote” by e-mail. This seems like the perfect solution. An issue or opportunity arises that calls for quick response. Directors are reluctant to attend an extra meeting. Why not circulate an e-mail, ascertain that there is general agreement and take action?

The ease and speed of email voting is seductively simple. But, this practice is a trap, because a board that relies on e-mail voting fails to comply with legal requirements for a proper vote, and exposes its decisions to attack. Nonprofit corporate statutes typically provide for board action to be taken either at a meeting (including a meeting by phone or video conference) or by unanimous written consent. Since an e-mail vote technically does not fit either category, it is quite possible that a court would consider an e-mail vote nothing more than an informal action, which is not legally valid. Even more likely, an attorney representing a nonprofit organization in a loan transaction might not be able to issue the “opinion of counsel” typically required by a lender, and this could delay or derail the entire deal.

Let’s take an example.

Playball (PB) runs a youth baseball program. A local businessman offers to donate land for fields, and arranges for a loan to cover construction costs. As interest rates are rising, PB needs to lock in the rate quickly. PB’s president tries to schedule a special meeting of the board to approve the loan, but can’t find a time when a quorum of four of the seven directors can meet.

So, she sends an e-mail seeking approval for the loan. Five directors respond, “Sure,” while two object. With a majority vote in hand, PB’s president signs the commitment letter and pays a commitment fee.

The closing approaches. PB’s attorney prepares the required opinion, which must state that: “All corporate proceedings required by law or the provisions of PB’s Certificate of Incorporation or bylaws to be taken by PB in connection with the transaction have been duly and validly taken.”

“Let me see the minutes of the meeting approving the loan,” says PB’s attorney.

“We couldn’t call a meeting, so we voted by e-mail,” responds PB’s president.

“Ok,” says the attorney. “You need a unanimous written consent, or to ratify the vote at a meeting or by teleconference.”

Unanimous consent is unattainable because two directors object. And, one of the five original consenting directors changes his vote. And of the remaining consenting directors, two are traveling in Asia, and cannot even meet by teleconference. With five of seven directors available, but only two who will vote in favor of the loan, PB’s attorney can’t deliver the opinion, the bank won’t make the loan, there is no deal, and PB forfeits its commitment fee.

While far-fetched, this scenario illustrates the danger of relying on informal board action.

Prohibition on Proxy Voting

In most states, directors may not vote by proxy. The theory behind this prohibition is that the discussion and interchange of ideas that occurs at board meetings is essential to the informed exercise of the directors’ fiduciary duty to the corporation.

An e-mail vote – that is, a proposal circulated and responded to by e-mail – is essentially a proxy vote delivered electronically.

The prohibition on proxy voting by directors has its roots in case law developed over many decades, known as “common law,” and eventually codified in statutes. The law regarding proper board action is substantially the same under the common law and under statutes governing business corporations and nonprofit corporations. In fact, most of the law developed in the business (or stock) corporation arena, but is applicable to nonprofit (or nonstock) organizations as well. But nonprofit organizations, whose directors are usually uncompensated volunteers, may be particularly prone to allowing their directors to vote by email.

The principal case in Connecticut on the issue of proxy voting by directors is a fairly typical one. In the 1956 business corporation case called Greenberg v. Harrison, the court invalidated the repayment of a loan by a corporation to its lender. The loan was to continue for one year unless earlier repayment was approved by unanimous consent of the directors. Finding that there was no unanimous consent because one director gave a proxy to another director but did not attend the board meeting, the court explained:

The affairs of a corporation are in the hands of its board of directors, whose duty it is to give deliberative control to the corporate business. This requires the physical presence of a director at directors’ meetings, and he cannot act by proxy.


In our example, PB’s attorney tired to implement the statutory exceptions to the requirement that directors meet in person. These exceptions can be easily adapted as modern technology progresses, and should be incorporated into an organization’s bylaws.


The statute allows meetings to be conducted by “any means of communication by which all directors participating may simultaneously hear each other during the meeting.” This provision allows teleconferences, and should permit web conferencing that combines voice or video communication with document sharing.

Unanimous Consent

Closer to the concept of e-mail voting, the statute also permits a board to act by unanimous written consent, if each director signs “a consent describing the action taken or to be taken.” This protects a director’s right to question the action or insist that the board discuss the matter, as a director may compel a meeting simply by withholding consent.

Combining the formality of unanimous written consent with the simplicity of e-mail, an organization’s staff member or officer may circulate the proposed resolution as a formal consent attached to an email. The organization must then collect all of the directors’ signatures. The consent may be signed electronically – \\John H. Smith\\ – for example, and delivered electronically – as a PDF attached to an e-mail.

E-mailed Resolution

An organization might also send an e-mail containing the full text of the resolution and ask each director to specifically respond and sign electronically. However, this procedure increases the risk that a technicality will be overlooked, and it is no simpler than attaching a formal consent to an e-mail.

The distinction between a formal consent circulated as an attachment to an e-mail, and an e-mailed poll of the board may seem inconsequential. But, note three important differences. Most important, all directors must vote unanimously. The directors must also receive a complete description of the proposed resolution and they must “sign” the consent.

E-mail is a useful tool for taking the pulse of a board. An organization may informally poll its directors and then ratify the decision with a formal in-person or teleconference meeting or by unanimous written consent.

The risk that an informal e-mail vote will prove problematic is small if the decision is unanimous, if no one litigates to pursue an objection or if no opinion of counsel is required. Nonetheless, directors should protect the integrity of their decisions by adhering to the statutory procedures and ensuring that through active and meaningful participation they stay informed and comply with their fiduciary duty of care.

Leah Cohen Chatinover is of counsel at Stanger & Arnold, LLP in West Hartford, Connecticut. She is a business lawyer for nonprofit organizations of all types, and can be reached at lchatinover@stangerlaw.com

Wednesday, May 25, 2011

New! Consumers Guide to Volunteer Management Systems

We’re thrilled to announce the release of our latest in-depth report, A Consumers Guide to Volunteer Management Systems, created in partnership with TechSoup. It’s available for free download with registration at http://www.idealware.org/volunteer_management.

Like all our reports, this one is the product of extensive research, interviews and hands-on system demos. It condenses the knowledge of experts and impartial reviews into an all-in-one-place guide to help nonprofits understand and choose the best volunteer management system.

Volunteers provide the strong backs that help build organizations, but volunteer-based nonprofits have to keep track of a lot of data, from contact info and schedules to time sheets and job sites. The right software can streamline that process and free up time for managing volunteers. Though there are a number of products on the market, it’s surprisingly hard to find information about them—until now.

We designed this report as an introduction to volunteer management software: what’s out there, what to expect, and how the different solutions compare. It covers the basic features and functions that might be desirable, and discusses the pros and cons of standalone systems vs. those that track volunteers alongside donors or other constituents. Finally, it compares the strengths and weaknesses of three standalone volunteer management systems and three consolidated constituent management systems, with contextual information about 21 additional systems.

Whether you’re upgrading your existing system or just starting out, let Idealware help your nonprofit make smart software decisions—use this report to guide you through the process. Download it now (free with registration)!

Want to know more, or to hear the researchers talk through the systems and considerations? Check out our online seminar Choosing a Volunteer Management System, for $40 on June 9th.

Laura Quinn Executive Director Idealware
laura@idealware.org http://www.idealware.org/

Friday, May 13, 2011

The Times Union & NY Council of Nonprofits Invite You to an Informational Breakfast

Join us to learn about sponsorship, grant and service opportunities available to nonprofits in our area.*

Wednesday, May 18th 2011

The Desmond Hotel & Conference Center
8:00am to 10:00am
Free: Register Now

NYCON & TUDid you know that the Times Union can help your nonprofit organization with printing and mailing projects as well as provide services and support for your online presence -- making sure more people see your website and other social media outlets?

As an additional benefit the Times Union offers matching advertising space in print for any services your purchase. *Must be a 501c3 charity providing benefits to the Capital Region directly.

We will cover:

  • Matching Grants, Basic Grants & Sponsorship Program

  • Search Engine Optimization (SEO) Program

  • Direct Mail & Mail Services (include design for letterhead, brochures and more.)

Thursday, May 12, 2011

Growing Interest in "Taxing" Nonprofits

The NY Times featured a recent story about the growing trend of municipalities developing or charging nonprofits service fees (aka taxes on certain services). Clearly this is a challenge for most nonprofits, especially as they struggle to address increasing needs, higher operating costs and decreasing funding and donations. It seems that nonprofits will likely cut services in response, especially since most have already cut everything possible in an attempt to preserve programs and services. What kind of impact this will have remains to be seen, but it feels like watching a train wreck in slow motion.

The article relates:
As recession-racked cities struggle to balance their budgets with everything short of feeling behind sofa cushions for loose change, a growing number are seeking more money — just don’t use the word taxes — from nonprofit institutions that occupy valuable land but by law do not pay property taxes.

Boston has been sending letters to its largest nonprofit institutions this year, telling them the value of their land and asking them to begin making annual payments that would eventually rise to a quarter of what they would owe if they paid property taxes. Mayor-elect Rahm Emanuel of Chicago wants the city to begin charging water fees to nonprofits, which have been spared them in the past. And the mayor of Providence, R.I., Angel Taveras, cited Boston’s example this month when he called on nonprofits to pay more money to the city.

Read more here.

Monday, May 2, 2011

Boston's Coercive PILOTs Experiment Should Crash

Tim Delaney, President & CEO, National Council of Nonprofits, posted to Huffington Post about the recent issue of PILOTS in Boston.

As he relates: Leaders of nonprofit organizations across America were stunned by reports this week in the Boston Globe and NPR's Marketplace that the City of Boston would turn its back on the nonprofit cultural, educational, and health care institutions that have played such vital roles in making that city great.

What stunned nonprofit leaders nationwide is that Boston sent letters essentially mandating that various nonprofits make "Payments-In-Lieu-Of-Taxes" (PILOTs) to the city based on the value of their property, even though Massachusetts law -- like the law in all 50 states -- prohibits local governments from taxing nonprofit property. What in turn shocked nonprofit leaders is how Boston intends to enforce its supposedly "voluntary" PILOT program: with a Scarlet-letter campaign designed to coerce compliance with the city's demand for "voluntary" payments.

Boston has concocted an Orwellian program that uses euphemisms -- such as "PILOTs" instead of "property taxes" and "voluntary" instead of "coerced" -- apparently attempting to hide what is really happening to evade what the law prohibits. The city, knowing the courts would strike down as an illegal act any attempt to directly impose property taxes on charitable nonprofits, invented a program to coerce "voluntary" Payments-In-Lieu-Of-Taxes. But slapping on a misleading label to cover a bad act does not render it any more acceptable; a payment based on property value is still a tax.

To enforce its legally unenforceable program, Boston has threatened to paint a Scarlet letter of shame on every nonprofit that does not comply with the city's demands for payments. Such coercion to obtain what the Commonwealth's law prohibits is outrageous and threatens everyone; who's next, when Boston -- or any government -- wants something the law prohibits?

The city's program also disregards unique aspects of nonprofit law, thus putting coerced nonprofits at risk of running afoul of the Massachusetts Attorney General, who has jurisdiction to oversee that funds donated to nonprofits are used as donors intend. By demanding that nonprofits pay the city 25 percent of their property's tax value, the city is whipsawing nonprofits, putting them in a lose-lose dilemma: either undergo the city's shameful public branding, or cave in to the city's demands to pay, only to have the Massachusetts Attorney General come after the nonprofit if donors complain that they gave their money for purposes other than transfers to the city treasury.

In trying to balance its budget on the backs of people served by charities and those who donate to them, Boston has disregarded not only the law, but also fiscal reality. The recession already has stretched nonprofits too far financially as demands for their services have skyrocketed while their revenues have nosedived, with corporate contributions declining, foundation grants down, and governments delaying payments and not paying full costs on legally-binding contracts. According to the IRS, even individual giving has sagged by 20 percent. Read more here.

Sunday, May 1, 2011

eba Announces Sale of Building to Better Address Mission

We’re Selling Our Building
So that we can better serve the Arts Needs of our Community

In 1977, after 5 years in a small loft on Central Ave, eba purchased this beautiful building at 351 Hudson Ave. At the time, it was a great home for us and we took full advantage of the theater and studio. Times have changed though and so have our needs and the needs of our community. We are not leaving - we’re just continuing to adapt to the new Arts world of today.

From our simple beginnings, eba has grown into a multifaceted arts organization that is intrinsically woven into the cultural fabric of our Capital Region Community. As we look ahead - to our 40th Anniversary in 2012- we realize that the building reduces our ability to provide the quality programs and services that you have come to expect from eba. By selling 351 Hudson, we will be able to invest the bricks & mortar dollars back into high quality programming. Our updated model will be more fluid and responsive to community needs - enabling us to continue to provide arts in schools, create new works, perform, and offer dance and fitness education at various locations throughout the community. We are not leaving, we’re just adapting to the changing Arts World--we’re bringing eba to you!

eba is dedicated to cultivating and developing an understanding of and public interest in the arts; through creation, performance, and education.

Of equal importance, we endeavor to cultivate an understandng of the inherent creative potential within each of us and to integrate these creative aims with daily life.

351 Hudson Ave. Albany NY 12210
(518) 465-9916